Small Cap Value Report (Tue 18 Aug 2020) - SOS, TAST, ANG, GMR, BLV
Morning all! It's Paul here with the SCVR for Tuesday.
Please see above for today's announcements which I'll be covering.
Estimated timings - I got a bit bogged down in Sosandar, as usual! But I've got nothing else on today, so will carry on writing this afternoon until all sections are finished. Finish time: 4pm. Today's report is now finished.
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Gold
I see the price of gold is rebounding strongly, after the recent plunge. It's something I've started following (and went long, via a spread bet, on the recent dip). Some of the reader comments here have been interesting in recent weeks, and persuaded me to look at this area - whilst acknowledging I have very little knowledge of the resources sector, but do understand the basics, after many lunches with sector experts over the last 20 years.
With so much money-printing going on (QE), major currencies can't really devalue against each other, because they're all at it! Therefore, as readers have pointed out here in the comments, it's logical for the increased money supply to cause currencies to devalue against gold. That makes sense to me, in simple terms, hence why I bought gold on the dip.
Interestingly, yesterday it emerged that Warren Buffett Berkshire Hathaway has unexpectedly bought shares in a gold mine;
Buffett deserves credit for shifting his stance to the new reality as a result of the irrational policies of massive borrowing and money printing by U.S. leaders. Berkshire Hathaway BRK.A, -1.90% bought about 21 million shares of gold miner Barrick Gold GOLD, +11.63%, spending about $563 million. That’s according to a filing released Aug. 14. Buffett’s conversion to gold is a signal for other stock market investors.
[Source: CNBC]
The article goes on to say that Buffett has historically been negative about gold. So this sounds a significant change in stance. Hence I'll stay long (lucky timing!), as this move by Buffett could draw in other investors into this area, perhaps?
EDIT: do have a look at the reader comments below too, on this topic. Some interesting perspectives! This may not have been Buffett's decision, as it's a relatively small position, and he's handing over control to younger managers these days. Nevertheless, it's all about perception, hence I think Buffett's famous investment vehicle going in this direction is bound to influence other investors. End of edit.
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Residential property market
I've seen two interesting press reports this week re the UK residential property market.
This article from CityAM, is one of many that report Rightmove saying a mini-boom started in July, with asking prices rising by 2.4% compared with pre-covid prices in March. The annual rise is 3.7% in asking prices.
Agreed sales statistics are up very strongly - up 15% in July vs July 2019. No doubt this is pent-up demand to some extent, but it is nonetheless encouraging. You don't need everyone to be confident, only the relatively small number of people who buy or sell a house each year. Other reasons for optimism about housing transactions include: the Stamp Duty holiday, people working from home realising how inadequate their existing homes are, and of course super-cheap mortgages.
This could prove bullish for housebuilders, estate agents, DIY, and other housing-related shares. Or it could already be baked into those share prices, who knows?
Rentals - more interesting stats from estate agent Hamptons International. It says that a lack of tourists has led to former AirBnB properties in London being repurposed for long-term lettings. This has flooded the rentals market, and led to a remarkable 8.4% drop in rents in central London, and -4.2% in Greater London. This phenomenon only seems to have hit the South. Rents in the Midlands & North are still rising.
It's interesting to see how supply & demand interact, to move prices up & down.
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Sosandar (LON:SOS)
Share price: 19.75p (up 8%, at 08:12)
No. shares: 192.3m
Market cap: £38.0m
(I hold)
Full Year Results & Trading Update
Sosandar PLC (AIM: SOS), the online women's fashion brand, is pleased to announce its financial results for the year ended 31 March 2020. In addition, the Company is pleased to also provide an update on trading in the current financial year.
Current trading & outlook is more important than the historic numbers, so I'll focus on that first.
Previous update (7 July 2020) - Sosandar gave us a Q1 trading update (for Apr-Jun 2020) on 7 July, which I reported on here. To summarise, it said;
- Q1 revenues up 54%
- I worked out the split as: April & May up 62%, June up 38% - remember these are against soft prior year comparatives
- Marketing & other spending reduced heavily in response to covid
- Q1 loss reduced 70% on LY, and close to breakeven in June 2020 (gross margin up, due to less discounting)
- Cash at end June £4.4m, only slightly down on 30 April (but doesn't state how much tax payments have been deferred, so could be deceptive)
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Today's trading update -
The Company is delighted with trading at the start of its current financial year. In Q1 the business successfully increased year on year revenue by 54% whilst simultaneously reducing operating costs by 71% to help drive a 69% improvement in its loss position.
That's the same information as we were given last time.
July performance -
- Revenue up 57% vs LY (strong, and improved on June's c.+38%)
- Gross margin also strong at 55.5%
- Operating costs reduced by 84% vs LY - seems very extreme. I wonder what costs they are classifying as "operating"? I'd like to see the specific numbers here, as my feeling is that Sosandar updates tend to be over-polished sometimes
- Net loss down 83% vs LY - impressive, but again I'd like to see the actual numbers
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Returns - YTD returns rate is much lower, at 38% (50% LY).
The reasons Sosandar provides are;
...driven partly by product mix, but also by a shift in customer behaviour across all product categories. Even as returns begin to normalise again, we are seeing returns well below last year's levels
This is very interesting. Asos (LON:ASC) also recently mentioned an improvement in returns rate (i.e. fewer customer returns of unwanted goods), which has continued after ending of lockdown. The unknown factor, is whether customers are reluctant to go out to the Post Office, or other premises, to return unwanted goods? Whereas pre-covid it would have been easy to pop returns into the office mailbag. Working from home, it's more of a faff. I'm guessing there. Asos also mentions customer behaviour changing, to shop more specifically for products, and the category mix (e.g. stretchy fabric loungewear is more likely to fit well, than tailored office wear).
Overall, I'm sceptical whether this new, much lower, rate of customer returns is likely to persist long-term, to this extent. 50% to 38% is a huge drop, I can't see all of that drop being permanent, but who knows?
Cash position - was £4.34m at 31 July 2020, which is barely changed from end June, and end April. Whilst that's great, we are not told how much VAT and payroll taxes have been withheld? Absolutely key information, that is not provided. Companies must provide this information, in current exceptional times, otherwise the cash position is misleading. (It might be buried somewhere in the narrative, which I haven't read in full yet, so if any reader has spotted this info, please leave a comment below, and I'll correct the article).
EDIT: I queried this with Sosandar, who said that there is no deferred VAT, and the company was in a small VAT reclaim position. An immaterial amount (sub £100k) of other taxes have been deferred, with the agreement of HMRC. Hence the cash position does look clean. End of edit.
Next & John Lewis deals - as previously announced on 9 June, Sosandar is to join there online platforms. Excellent news. This should be seen as a form of marketing, to get the brand out there to many more customers. The online platforms make the profit, but it should nicely grow Sosandar's brand, and bring in new customers who might then become direct customers.
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Results FY 03/2020 - the numbers look grim, as expected. All that matters is, how do the figures differ from expectations (if at all)?
There was a profit warning buried at the end of a previous trading updates (re. an inventories provision), see my report here on 9 June 2020. The company said this was done because current trading is more important than historic numbers. I disagree. People bought the share on good current trading, but only realised by lunchtime that there was a profit warning at the end of the update. Meanwhile the house broker put out reduced forecasts to its client base only, and the rest of us were left with a misleading impression, until the penny had dropped around lunchtime. People buying on the opening bell felt aggrieved, when the price went back down again by lunchtime, understandably. This leaves a bad taste, and people don't forget these things. A profit warning should always be delivered clearly, not buried in the detail, at the end. Anyway, on to the figures today.
Key numbers for FY 03/2020;
Revenues £9.03m (just about matching the most recent guidance of "at least £9.0m")
Loss before tax of £7.8m, which is a bit worse than I was expecting (I'd estimated about £7m in response to the 9 June trading update)
Balance sheet - looks OK for now, with net current assets of £7.5m, including £5.3m cash. However, given the very high cash burn in the last year, this is not a secure long-term position.
Fundraising? - set against that, as mentioned above, the cash burn has drastically reduced in the new financial year, due to slashing costs, and surprisingly strong revenue growth. Therefore there's no immediate cash worry, but I remain convinced that SOS will need to do another fundraising, or maybe several. It's probably going to need more cash for the peak autumn/winter season inventories purchases, and marketing splurge.
That's not necessarily a problem though. Current trading is good, cash burn reduced (at least temporarily), and the share price has almost quadrupled from the covid low in March. Market cap now £38m, so a typical top up placing of £3-4m would only be about 10% dilution, hardly a disaster. As it wouldn't be a surprise either, then I don't think the market would necessarily take fright.
Note that despite negative comments I often read about Sosandar, it's still comfortably above the 15.1p price it listed at. Not bad, considering it's burned through way more cash than originally planned, in order to achieve the demanding original revenue targets.
Cashflow statement - very straightforward. Note the big increase in inventories, which look rather high to me for that time of year. Partly explained by management policy to buy all year round lines, such as denim, in greater depth, to avoid running out of bestsellers like in the past.
Operating cashflow was an eye-watering £9.1m for the year. This year's figure should be much lower, due to the big reduction in marketing spending, and increased sales. But it's still clearly a well short of sustainable breakeven, in my view.
My opinion - FY 03/2020 results are a little worse than I expected, but not enough to change my view on the share from my last update, where I made it clear that I'm not as positive on this share as previously, because it's costing so much more to execute the business plan. Hence that lowers the upside on the shares, because we're heading for almost twice as many shares in issue as originally when it floated. For that reason, I reduced my position size, as previously mentioned, and am more comfortable continuing to hold as a medium, rather than large position in my portfolio.
I still really like the niche, the unique perspective of management (and their work ethic & determination). Creating a brand like this from scratch is an incredibly ambitious project, and very few achieve scale, despite many trying. I think SOS is going to get there, but after a couple more fundraises probably.
I've printed off the full announcement, and will go through the narrative in more detail this afternoon, but let's get this up, as it's already taken up the entire morning!
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Tasty (LON:TAST)
Share price: 2.1p (down 9% at 12:03)
No. shares: 141.1m
Market cap: £3.0m
Tasty (AIM: TAST), the owner and operator of restaurants in the casual dining sector, announces the following update, further to the announcements made on 26 June and 3 July 2020.
Too small to mention here really, but I like eating in their Bou'mth branch, so thank you for your indulgence.
Planned reduction in workforce by >30% now largely complete
Up to 48 sites (out of about 56) will have re-opened in August, but;
... principally to take advantage of the Government's 'Eat Out to Help Out' scheme and reduced VAT.... Most of the remaining restaurants are not planned to re-open for the foreseeable future and some of the restaurants which are currently open may need to close again should they not reach expected trading levels.
Sounds grim to me. This is effectively a business on life support, like so many in the hospitality & retailing sectors. Therefore investors need to understand this share is very high risk. The equity could easily turn out to be worth nothing, or very little.
August trading - I like the frankness of this commentary;
The Company has experienced a positive level of sales this month to date, temporarily supported by the increase in people staying in the UK this summer, Government initiatives and pent up demand following the relaxation of lockdown restrictions since March, however, the Board expects future trading to remain challenging.
I've never seen their Bou'mth site so busy, every day, not just Mon-Weds half price food days under Eat Out to Help Out. Unfortunately, they've reduced the portion sizes , which customers notice, and really aggravates me, especially when the taxpayer is paying half the bill.
Outlook -
The Board remains extremely cautious regarding trading in September and is continuing to explore ways to minimise costs...
What else can they cut? It's obvious from my regular site visits to Bou'mth, that the staff are absolutely run ragged, and doing a remarkable job holding it together, whilst so obviously under-staffed.
Fundraising - this is more explicit than ever that the company needs to raise more cash.
It's blindingly obvious to me that Tasty needs to do a CVA or pre-pack administration, to jettison its onerous leases, and become sustainably profitable. I can't see why anyone would want to refinance it in an equity raise, without a CVA/pre-pack admin. You only have to subscribe for Draper's Record, Langton Capital, and Propel daily emails, to see that there's already a huge wave of companies in retail/hospitality going down the CVA/admin route, and requiring turnover rents, or drastically reduced conventional rents, to continue operating on a site by site basis.
On top of this, we've got the covid second wave risk facing us in the autumn/winter, when any higher transmission rate could kill off businesses like this which are only just holding on.
As a business, I like Tasty, it has modern, nicely fitted out sites, with an OK menu. But the rents need to come down drastically, and that can only happen quickly with a CVA/administration. They need to bite the bullet, and get on with it. Existing equity valuation? Between nil, and not very much, I'd say. There's also a big risk of de-listing, if the City cannot refinance it. Although I think a placing to fund a pre-pack administration re-starting of the business would be an attractive investment proposition. Personally I've made up my mind not to touch this share until it's done such a restructuring that involves getting rid of all the old leases. Competitors are lining up to do that, so anyone that doesn't is going to be at a great commercial disadvantage, paying too much in rents.
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Angling Direct (LON:ANG)
Share price: 56p (up 14%, at 12:58)
No. shares: 77.3m
Market cap: £43.3m
Angling Direct plc (AIM: ANG), the largest specialist fishing tackle and equipment retailer in the UK, is pleased to announce its trading update for the six months ended 31 July 2020.
ANG currently has 36 retail sites, and online operations in several countries.
I last reviewed it here on 3 June 2020, looking at its accounts for FY 01/2020. These results struck me as poor (a small EBITDA loss, blamed on flooding in January, low margins, and more conservative accounting). That was before covid struck as well. Further negatives were heavy expansion capex not generating any apparent return, and a business model that requires high inventories (very large product range). Hence my starting point is one of scepticism about this share. Let's see if there's anything today to change my mind.
H1 update today - key points
H1 revenue up 21% to £32.1m, despite all retail stores closed 24 Mar - 14 June
Retail sales LFL down 23% in H1, due to lockdown temporary closures
Online sales growth is strong at +43% in H1, UK & internationally - as I would expect, if the retail sites are closed. Standout countries are France (+62%) and Netherlands (+81%), but actual figures not given, so could be from a low base maybe?
Online revenues were £17.9m in H1, being 56% of the total (helped by retail sites being closed of course)
UK stores - very strong LFLs since re-opening: +75% from 15 June to 31 July. August to date not mentioned.
Net cash £21.0m at end July. Seems very high. It did a £5.5m placing in June, and only had £6.0m net cash at 31 Jan 2020. So where has the rest of this cash come from? Deferral of taxes could be part of the increase? It drives me mad when companies don't disclose the short-term benefit they have seen from deferring VAT & other taxes. It's really misleading. We need that information to properly understand the true underlying cash position. This information below is too vague;
Due to the strength of trading, associated cash conversion and working capital timing, the Company's cash position at the half year has grown strongly to £21.0m. In the period the Company raised £5.5m (gross) from a placing of new ordinary shares and arranged a £2.5m short term credit facility that remains undrawn.
It'll be interesting to see the actual cashflow figures when they're published. I bet the cash has come more from de-stocking & stretching creditors, than from profits. Hence, once these temporary factors reverse, I imagine the underlying net cash figure is probably a lot lower, maybe c.£12m level, is my rough estimate?
Margins - this is encouraging, and it follows the strategy the Gear4Music has successfully implemented, of raising margins, rather than chasing revenue growth (for vanity);
...the Company made good progress in the key areas of developing margin, increasing own brand sales penetration, improving working capital and leveraging efficiencies from previous supply chain and store investments.
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Outlook - a nice balanced commentary here;
Looking ahead, the Board believes that it is very well-placed within its market to benefit from "staycations" over the summer months, as well as heightened interest in angling as customers seek to take advantage of its numerous wellbeing benefits.
The impact of Covid-19 has created an exceptional sales period, with pent-up demand certainly experienced as a consequence of fisheries being closed for almost two months. Whilst the extent to which some of the exceptional trends will continue longer-term is not yet clear, with no further Covid-19 restrictions, the Board is expecting sales to begin reverting to more normal trading patterns during the remainder of the year.
The strong balance sheet means the Company is well positioned to withstand any further challenges, whilst also continuing to invest in key growth areas.
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My opinion - this seems a good update. I shall review the interim numbers with interest, when published on 14 Oct 2020.
I'd say the market cap looks reasonable, especially if ANG can do what G4M did, and drive up the gross margin on own brand products.
Macro trends this year seem to have worked to ANG's advantage, although how much of that is one-off, we don't know.
Overall, I'm starting to like this share. It looks more interesting after today's update. Although doubt I'll buy any myself.
A 5-year chart like this tells me that the market is sceptical, and that it would need something fairly substantial, and enduring, to convince investors that it's suddenly become a good business.
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Gaming Realms (LON:GMR)
Share price: 22p (up c.4%, at 14:19)
No. shares: 286.0m
Market cap: £62.9m
(I hold)
Gaming Realms creates and licenses innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats.
This company issued a "significantly ahead of market expectations" update on 2 June 2020.
We get more of the same today;
Following on from the Group's trading update on 2 June 2020, the Company is pleased to announce that it has continued to trade ahead of market expectations... As a result of this, the Board expects revenue and EBITDA for the full year to 31 December 2020 to be materially ahead of current market expectations.
Revenues in H1 2020 (the "Period") were £5m (H1 2019: £3.1m) with adjusted EBITDA of approximately £1.2m (H1 2019: Loss of £0.1m).
If we double H1 EBITDA to annualise it (assuming H2 matches H1 performance), then we have annual adj EBITDA of £2.4m. Not bad, but bear in mind that the company capitalised development spend of £2.7m last year, therefore it's still operating at a small negative cashflow.
I've got balance sheet concerns too, the NTAV was about zero, and it's historically been a heavy cash burner. It's hoping to become cashflow positive in 2020. There's £1.5m in deferred consideration due to be paid in Dec 2020. Put that together, and I think an equity fundraising looks very likely. Not necessarily a problem though, as the share price has been very strong lately, and the market cap is now £62.9m. Therefore it could raise say £5-6m with only 10% dilution. Hence the weak balance sheet is not a deal-breaker for me.
Slingo - this software seems to be selling well;
The performance in the Period is a result of the expansion of our partners internationally and the release of new "Slingo" games, which have had increased take up by consumers.
I downloaded Slingo games onto my smartphone, and have noted on my pad: "Quite good, but mindless!". Nothing wrong with that, Kandy Krush fits the same description, and look how much money that made for investors, billions!
GMR's client list is where the interest lies. It is successfully licensing Slingo and other games to some big name gaming companies online.
My opinion - there's something interesting here, but I have no idea how to assess its future prospects, nor how to value it.
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Belvoir (LON:BLV)
Just to flag up a retail investor presentation - details here.
It seems an interesting share, and the company is trading well.
All done for today! See you in the morning.
Best wishes, Paul.
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81 comments
Off topic anecdote:-
Just submitted an offer to a builder on a new house, waiting to see if the offer is accepted.
Paul is correct. The Builders at the moment are bullish and happy to set high price targets. This is why *we* invest!
SOS
It's quite funny we are mostly men commenting here on a female market. Take a look at what they're doing in Denim Shop (https://www.sosandar.com/denim/). I was pleasantly surprised by the variety (86 items), but surely 'denim is denim' so where's the catch? But the range and variety gives me hope. I remain a mid position long term 'cautious' bull. Phil.
Sosandar (LON:SOS) interesting SP movement - some hot share price movement in the 2 week run up to annoucement...uhhumm....
TBH I've begun to doubt whether Sosandar (LON:SOS) will ever get to the point of being a great business.
One thing that bugs me is the co-CEO status - effectively paying double remuneration. Is that value for money?
It seems to me that their skillset is in publishing/designing clothes, and networking, not in selling them profitably. Most of their non-execs don't seem experienced in the specific industry. The website says the CFO is also CFO of another company and is on the board of others and also lacks sector experience - can't see how that is good for shareholders.
The CFO is about to be replaced by the guy from Regatta. Good track record there.
Thank you for your comments on gold Paul and pleased to hear you have joined the party. I don’t consider myself a “gold bug” but am long Anglo Asian Mining (LON:AAZ) (19.4% of pf) and gold (7%).
I think in the current environment it is a good hedge against uncertainty and QE induced inflation. In addition Anglo pays a great divi and by my estimates should be priced between £3.50 and £4.57.
I thought this was an interesting sentence in the article you linked to:
“Buffett deserves credit for shifting his stance to the new reality as a result of the irrational policies of massive borrowing and money printing by U.S. leaders.”
I am not sure it is irrational anymore than it was in 2009 but I think the irrationality was the inability of the central bankers to reduce the size of their balance sheets in “good times” because every time they tried to markets swooned. Central bankers are there to serve the economy not the markets IMO.
One last point to make on the Buffett Barrick purchase is on its size. Every $2.29 that the price of Apple (The purchase of which was not just his greatest trade ever but THE greatest trade ever - hat tip Tobias Carlisle) moves equates to the BRK.A investment in Barrick.
Regards
Michael.
Gold feels like certainty when everything else is uncertain. The beauty of this certainty is that its powered by whatever argument people want to make up for it. So gold is a spectrum of anti-uncertainty rationales. Sweet whilst it runs.
Fundamentally the best explainer of gold price is real yields and oil price. The lower the former and the higher the latter the better. People may be confused about the oil price connection but the high the cost of energy then the less attractive it is to mine and refine gold which is a hugely energy intensive operation with most of the decent new resource in locations where energy supply and transportation are tricky.
Gold miners all else equal like low energy prices as that means high profits....until excess investment pulls the price of gold down.
This might be completely irrelevant given they're still relatively small but I'm not sure many people even know who Sosandar (LON:SOS) are. I live with two girls aged 20 and 23, where the house is like a mini Post Office with daily clothes parcels, but neither of them had heard of it when I asked them.
Companies like Boohoo (LON:BOO) are able to spend massive amounts on marketing and with promoters on Instagram for their various brands like PrettyLittleThing, MissPap, Nasty Gal etc so sure Sosandar is going to require a hell of a lot more money to get anywhere near the size of these brands.
erm not sure I follow? The whole Sosandar (LON:SOS) niche is that 20-23 Year olds are not their demographic. They position themselves in the 25 and up bracket. ie when very cheap fast fashion gives way to the desire for a slightly more mature/elegant look. non throwaway is the term I believe. Two entirely different business models and demographics.
Re Sosandar (LON:SOS) and the Next/John Lewis deals,
I appreciate the reasoning (get the product in front of many many more potential customers).
I realise that this comes at a cost (reduced margin but also at, hopefully, zero marketing cost which might make these sales effectively loss leaders). That's OK if, as seems to be assumed by many above, these initial sales lead these new customers to migrate to the Sosandar (LON:SOS) site to buy direct, at full margin, in future.
But, is there any research to show that this is actually what happens in the real world or, as I fear, are the Next customers actually very used and happy with the Next website and the Next customer experience to just continue purchasing Sosandar (LON:SOS) product that way rather than having to go through the whole rigmarole of registering on a new site (yet another new log in procedure, new payment procedure etc.) to be able to buy the exact same products.
Isn't that one of the main reasons that Amazon is so successful?
The only reason for switching from Next to Sosandar (LON:SOS) for purchases would be if the product was cheaper and/or if the range was much bigger. Does anyone know if the Sosandar (LON:SOS) range available via Next is smaller or more expensive?
* For Next you can also read John Lewis.
As a Sosandar (LON:SOS) holder, I hope that I'm wrong.
Amazon are so successful because they make it very profitable for suppliers to be on their platform!
A Sosandar (LON:SOS) listing on a Next or JL platform will not be a loss leader. It will reduce gross margin as there will be a commission to pay on each sale. However, that commission paid will be offset by having no marketing costs. Whether that is a full margin offset or a partial margin offset is unknown.
Not all products will be available on the Next or JL platform so if you buy from there and like the product then Sosandar (LON:SOS) can send you their glossy or other marketing material and some people will buy direct.
This is not a new method of distribution for fashion brands. In retailing it is generally seen as a good thing and I am surprised at so many negative comments about it today.
My wife is a supplier on Amazon and, as a very small business, it's stonkingly expensive! But, in her niche, they are pretty much the only game in town.
Does anyone know if the Sosandar (LON:SOS) range available via Next is smaller or more expensive?
It's a few key lines that will go on Next, is my understanding. SOS always stress that they develop strong customer brand loyalty, with very good repeat buying stats. Hence why the Next/J Lewis online platform route makes sense, to develop the brand without having to spend squillions on advertising.
I dont hold Sosandar (LON:SOS), but what deterred me, was the no. of views on youtube for Sosandar (LON:SOS) videos - they were a wee bit underwhelming to say the least.
Our conveyancing department has never been so busy with completions, so I agree that the housing market is booming. However we are based in a fast growing town 45 minutes from London (by train), so perhaps people are re-locating away from the City? I bought shares in Foxtons (LON:FOXT) a few weeks ago but they haven't really moved, so I hope that the news is not yet baked into the price! However, I am concerned that all this demand and transactions will mean that there will be a period of decline next year, especially when the stamp duty holiday comes to an end in March.
Gold and silver (catching up fast) have been on a great run this year. The mining companies are IMO yet to be re-rated. I have held a collection of mining companies for many years now - holding through the end of the bear market - and also like having the advantage of diversification through holding an Investment Trust £GPM - Other companies I hold are Anglo Asian Mining (LON:AAZ), Shanta Gold (LON:SHG) and £HUM
I'd like to see a gold price of over $2000 for a period of time to enable the market and brokers upgrade the mining companies, such as Anglo Asian Mining (LON:AAZ), which are throwing off cash. Their 2019 All-in Sustaining Cost was $591 per ounce....
Thx for the comment on Anglo Asian Mining (LON:AAZ) (I hold). Problem is that yes it is throwing of cash and divis but the house broker doesn’t put out a forecast dividend yield so anybody who does not dig too deeply or uses a screen will not see it.
It is very frustrating. I just hope that value will out at some point soon and the price will hit the up £3 where it should be. All IMO of course.
For those interested in recurring revenue & saas models the below is one of the best articles, irrespective, ive read on seeking alpha:
https://seekingalpha.com/article/4367907-5-essential-traits-to-look-for-you-buy-saas-stock?mail_subject=must-read-5-essential-traits-to-look-for-before-you-buy-a-saas-stock&utm_campaign=nl-must-read&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha
There have been comments here in the past about a US SCVR & liquidity or lack there of in UK shares. The more i think about this the more I'm inclined to start to focus on the American small cap market. There is all the robinhood craziness but find a small cap stock in uk, with uk customers it might double, treble. The us customer market is so huge that the same company can far far more given the size of addressable market & the liquidity & opportunity for a higher pe due to the possibility of continued growth. Thats my thoughts and just wish id have these thoughts years ago, but with data so available researching US stocks not that hard.
Do any readers follow and good idea newsletters that focus on the US small caps. I like ‘good’ newsletters as a form of filter - like this site, someone has done a first pass for you.
Thankyou
Yes, john652 nothing wrong with concentrating on the US small cap market which is indeed a rich hunting ground. I have been investing in the UK and US (including smallcaps and microcaps) for over 30 years but there are quite a few UK smallcaps with Europe-wide or global markets and often these are the UK smallcaps I concentrate on because you are absolutely right in thinking that market size makes a big difference. For some sectors, notably biotech and speciality pharma, the selection of smallcaps in the UK is pathetic compared to what is available in the US so you really need to hunt in the US if you are interested in these sectors. The other points I would make are that spreads for most smallcaps and even microcaps are tiny in the US compared to the UK and of course there is no stamp duty to pay on US shares in general. One downside is foreign exchange costs but these can be much reduced if you get a multicurrency account. Another downside is witholding tax if the US company you invest in pays dividends, but this tax can be reduced by filling in the W-8BEN form with your broken. I have actually got a Charles Schwab dollar denominated dealing account and the US dealing commisions which apply to this account are only $4.95 (£3.75) per deal and I even get a margin facility depending on what stocks I hold, but I'm not sure if these accounts are still available to new customers in the UK, but might be worth investigating.
Paul: "it's logical for the increased money supply to cause currencies to devalue against gold"
Not really. If that was a sufficient argument then currencies would also devalue against everything else too e.g. copper, wheat, oil, housing..... In other words, we would have generalised inflation, which is not going to happen any time soon to any great extent.
I own gold but not for any reasons related to so called currency "debasement". For me, it's a play on low economic growth and so provides a hedge against cyclical assets. Low growth will mean low (negative) real interest rates and a lack of good investment opportunities. That's what drives gold. Add in a bit of speculative excess (e.g.the fact that it's being discussed here?) and it looks attractive.
When and if we do see substantive, self supporting economic growth in the US, the gold price will tank regardless of how big central bank balance sheets are. In the last cycle we had a fantastic run up in price after the "great recession" and then it collapsed by 40% without any contraction in the money supply. I wouldn't be surprised to see something similar this time.
Until then, there are big opportunities to ride the wave for profits with tight risk control.
Chart of the day, US Put/Call ratio at almost lowest for 20 years, more fuel to the fire on markets overvalued? Each time the ratio hits these levels the line spikes up again. Reuters have the title ‘screaming buy’ maybe ‘screaming sell’ more appropriate?
https://fingfx.thomsonreuters.com/gfx/mkt/yzdvxnbngvx/Put%20call%20ratio.JPG
Ive said it before, with the new site, in my opinion being poor & designed by a white space advocate, Bloomberg terminals look like they do for a reason, if Paul set up his own daily paid for blog & 90% of the contributors here posted their, i think sharepad might have a few more subscribers..... Ed should be adding the Hollandsmith functionality to this report, its only code... to put it out there...
I agree that the mkts look way overvalued compared with "normal" times....but with governments pouring in vast amounts of money and interest rates at zero I think there is a wall of money still to come in. Two micro small caps have both increased 20 fold over the last month...yes, 2000%....and perhaps as a result punters are chasing anything and everything. Gold and bitcoin are both moving up sharply. Robin Hood punters are on a roll...for the moment... and published analysis suggests it was the big funds that were slow to buy the markets at the lows not private individuals. Meanwhile, companies are having to evaluate where they are. M and S losing thousands more jobs today is terrible for employees...but we all know it is about time that business had a good cold look at the future and this had to be that time. New companies are springing up or becoming known...I have to host a Zoom event shortly. I had never heard of Zoom just a few months ago.
I am sure at some stage there will be a sharp pullback so I am pulling out cash when my portfolio exceeds a certain level....and at the moment that seems to be a daily event as almost everything is being chased higher.
I tend to agree with you barnetpeter. I am also taking profits and holding a good chunk in cash - a risk I know of missing out on the ongoing rise, but I am up a decent % this year (thanks largely to gold and other miners) so am sitting pretty happy at the moment. £GMR Gaming Realms today was the sign for me to sell out the last of my holding - Pauls comments are spot on about it being very difficult to put a value on the stock. I am tending to believe there will be a short sharp drop in the markets in the next few weeks which will be a signal to put in some of the cash I have on the sidelines. Just not sure yet where to deploy it.
Hi Barnetpeter,
I thought an interesting chart but I'm not sure it’s a screaming sell either, only that when one thing is at an extreme its worth being cautious. However the s&p is really a nasdaq light, so covid beaten and back to normal tech is a winner, more (dumb as...) lockdowns, tech a winner, its a ride worth sticking with i feel.
John I have to say I agree on the “white space advocate” comment. On some sites (marketing/sales) it work/is necessary but on data sites I think it just doesn’t add anything.
Barclays online is another example. I just want to pay someone or get a bank balance, they don’t need to make all whit space. Let me see 50 a 100 transactions a screen not 3!!
john,
You make imho a really important point here, which I'd love to discuss further.
I think you are on the "new site" so cannot get Private Messages (although if you can switch back & PM me that would be great) otherwise if you are on twitter, can you PM me @Gromley20 ?
Sosandar (LON:SOS)
I was struck by the info that they have signed contracts to be on the Next and John Lewis platforms. Presumably, they will be giving away a fair chunk of margin to do that but think that the added visibility and volume they will get will be worth it.
The danger to me is that many a business person has chased volume only to find out later that the profit numbers didn’t stack up.
Graham - I think if you look at Boohoo (LON:BOO) and £ASOS they all do exactly this. It is not about chasing volume it is about expanding distribution channels
davidjhill is correct. Sosandar (LON:SOS) management have mentioned Next & John Lewis websites before, and emphasised that it's primarily a marketing exercise - i.e. to introduce Sosandar's brand to new customers, who might then buy direct from Sosandar in future, if they take to the brand. There could be a spin-off benefit in increasing quantities (and hence lowering unit cost price) for some product.
Paul
I don’t think I would take it so literally. Unless management reveal the terms of the deal, which they obviously won’t, we have no idea how much margin they are giving away. Call giving away margin a marketing exercise if you like, but it is certain that these sales through the JL and Next websites will be lower margin and so it is a case of these sales will be higher volumes at the expense of lower margins.
These new channels would have to deliver very substantial volume for it to impact on Sosandar’s buying power with their suppliers. So, that is so uncertain I would not attribute any weight to it.
Additionally, I don’t agree with David that this is just the same as Boohoo and ASOS. Boohoo are massive and so they will get much better terms from a channel partner, whereas Sosander are a minnow and are unlikely to get favourable terms.
Sorry, but that's just complete supposition supported by no facts.
It will reduce margin as they will pay a commission on sales but it will reduce operating expenditure as they will not pay marketing to recruit.
These new channels would have to deliver very substantial volume for it to impact on Sosandar’s buying power with their suppliers. So, that is so uncertain I would not attribute any weight to it. (Graham F)
It will reduce margin as they will pay a commission on sales but it will reduce operating expenditure as they will not pay marketing to recruit. (Davidjhill)
This is what I value Stocko for :) - reasonable debate and interpretation of results and strategies. If answers were clearcut, we would all be on a beach somewhere.
I had already posted on Sosandar but seem to think and type slower than most so often find the debate has moved on! To me, yes effectively wholesaling via Next etc will be margin dilutive but (i think) quite positively incremental in terms of absolute gross margin with very little increase in overhead (some initial negotiation but not much since as a minnow Next's rules will be strong, especially with fulfilment from both largely automatic). Very few of those currently buying through the Sosandar (LON:SOS) website will be moved across to Next/John Lewis, certainly vs the number of new customers who I'd hope come across the other way)
Next have also been clear their strategy is to make it profitable for 3rd parties to use their platform so SOS should at least 'wipe their face' ie it is a self liquidating promo that drives trial and awareness.
SOS is early stage right now ; it's first job is to emerge from the huge mass of tiny brands (eg those founded by celebrities, influencers and wannabe entrepreneurs) to become a national name and regular part of the buying stable within its demographic core.
I think it is steadily on its way to that modest goal (£30-50Mn) turnover at which level it will be nicely profitable and much more valuable than. Success is by no means assured so net, net (as so often!) perhaps the market is pricing it about right!
David
That's not the case.
If you are paying a commission it is absolute fact that it will reduce your gross margin (sales revenue less cost of product, less commission). There is no supposition there at all.
If you want to have a discussion about net profit (having deducted marketing, sales expenses and other overheads) then that's fine. But gross margins will reduce.
It's not "fact" if it's missing half the story. It's like lies. damned lies and statistics.
Net margin is way more important than gross margin..... would you rather have a gross margin of 50% but a net loss due to admin costs that include marketing or, a gross margin of 40% but a net profit because you don't need the marketing costs? Know which I'd prefer.
"Supposition" because you have made several assertions that adding a distribution channel like Next and John Lewis is a bad thing without any knowledge of the terms of the deal. An assumption that management are chasing volume over profit - how do you know this? They have far better MIS on the business than you do and unless they prove to be muppets you'd imagine they expect it to be profitable and will undoubtedly take into account the reduction in marketing spend against the commission paid in calculating the true cost.
Neither Next or John Lewis are likely to want to make their platforms unprofitable, in much the same way Amazon likes to make its platform as profitable as it can for its suppliers. Both Boo Hoo and Asos and others use the Next platform (if they aren't barred due to ethical concerns) so it clearly has benefits as a distribution channel that their own networks don't produce.
David
Accusing me of ‘Lies, damn lies and statistics’ is really lowering this debate into something more reminiscent of ADVFN.
So, I’ll leave it there.
Graham - sorry, my comment was not meant to be accusing you of anything. What I was trying to say is that if we only recognise one half of the cost/revenue equation we enter the world of statistics painting an inaccurate overall picture.
Thanks David
I appreciate what you are saying. Really I’m not saying anything much different. The listings on Next and JL should hopefully be good for Sosandar (LON:SOS) . It’s just the degree of optimism to attach to it where we differ.
Having spent 25 years in sales and marketing I have seen many spend too much time looking at the top line and not enough looking at the bottom line. And therein lies my nervousness about these tie ups. The sales and marketing costs associated with managing the indirect distribution channels are not insignificant. e.g. if you want to keep your listing you may be pressured on a fairly regular basis into giving further financial support for promotions. However, in Next and JL I think they have chosen two platforms that hopefully treat their suppliers well. And I agree that we just don’t know how far marketing and other costs can be reduced to offset all this. So, the future is not so obviously rosy to me.
Until we see some numbers to show that this is generating profitable growth I think the bunting has to stay firmly in the box.
Lol - yes, I think opinion on this share very much sits divided into two camps as I describe in another post below and I suspect this is quite a good example/ case study of the difference between UK and US investor attitudes around companies remaining loss making whilst investing for growth.
I probably come across as an uber bull on Sosandar (LON:SOS) but I'm not really. There are things I'm less keen on such as the tendency to bury bad news and what seems like cherry picking of stats. It makes my job harder to analyse across periods and I don't like that.
But I do think there is much going for the company and I also think it is somewhat misunderstood in terms of strategy and size of market, hence my flurry of posts today. So perhaps management need to do a better job here too. I saw a couple of early presentations that were very good/clear and I think they need to start these again.
Do Sosandar actually get customer details when someone buys one of their garments off the Next website? Or even the ability to slide in a leaflet with the order?
I can buy lots of brands off ASOS, but I don't recall getting any marketing materials at all from a brand.
Personally I believe the benefits of this are short-term. One thing Next gains is the analytics - they know what is being browsed, and by whom. If anything sells extremely well, they will simply bring out a version of it themselves. I don't believe the Sosandar brand is that strong as yet, neither are their clothes distinctive enough to prevent others from bringing out a reasonable enough copy.
I thought we are in the age of influencers - social media can be very powerful even among the slightly older demographic.
Yet I checked their Twitter (https://twitter.com/sosandar) and their last post was 6 months ago and they have barely 1,000 followers and don't engage with their customers. What is the excuse for that? They already post on other networks so it's not down to lacking staff.
For less than 10% of the CEO's combined remuneration this year they could have employed a full-time social media team.
If I had to make a guess at the future I do think this will end up under the Boohoo umbrella, like Karen Millen. That gives the co-CEOs millions of pounds and they still get to be clothes designers.
"If I had to make a guess at the future I do think this will end up under the Boohoo umbrella, like Karen Millen. That gives the co-CEOs millions of pounds and they still get to be clothes designers."
Snoo - you could be right about it ending up under the BooHoo umbrella but experience suggests that would be after Sosander goes into admin and BooHoo picks up the brand for peanuts and then runs it themselves. I doubt they would see the need to employ the founders at great expense.
Thanks for the heads up re their twitter presence. That is concerning. As you imply, there's no excuse. It can certainly be done by someone from home.
Yes - the growth rate is terrible isn't it, they seem to be really suffering to attract customers ;)
perhaps they found other more effective methods........
Sosandar (LON:SOS)
the results look a bit of a car crash as was to be expected , looks like they needed to pull every string they could just to hit that £9 turnover level.
Stocky shows expexcted 2021 sales of £21 mil - with the latest update confirming 57% increase yoy it looks like they are well behind that target - which i am guesisng may now be out of date - could revised expectations be below £16 mill?
do the 2 main bods in charge deserve more than 100% of salary in share based payments? if we say for every £1 sales it cost them £1.75 in expenses to book that sale?
remuneration for the 2 a nice 600k for the year (including share based payments)
on the plus side losses down 83% - however its still not clear to me what level of turnover they need to hit to reach breakeven even in the current cash conservation mode they are currently in - the admin expenses seem to remain stubbornly high?- could it be as much as £25 mill just to hit breakeven and can they keep growth rates at 30% plus when they hit that level of sales or will they start to hit a brick wall in that regard at some stage?
I will continue to monitor from the sidelines for now.
rmillaree - if you read through the announcements in a bit more detail you will note that Cashflow remained flat between April andJuly m/e. That suggests that on the reduced operating base they are now broadly breakeven, particularly as this is nowhere near a peak trading period in the year.
The question is more how much marketing spend they are now planning to utilise as this incurs a lag between spend and payback.
As the Next and John Lewis platforms come online that will increase customer channels with no additional marketing spend but will incur the commission on sale.
A big drop to 38% returns also bodes particularly well.
Sosandar (LON:SOS)
davidjhill
rmillaree - if you read through the announcements in a bit more detail you will note that Cashflow remained flat between April andJuly m/e. That suggests that on the reduced operating base they are now broadly breakeven, particularly as this is nowhere near a peak trading period in the year.
I would disagree with you here - its easy to pimp your cashflow (eg they didnt have to pay their vat bill as normal qe June ) they confirmed they are still losing money when they say the following.
83% improvement in net loss position vs prior year
the lack of any comment ref breakeven (other than the June blip) suggests that the are definately not at near breakeveen - surely if they were trending there they would have told us that?
So i will presume they are still predicting ongoing losses - at least the trend is deffo in the right direction at present - although their use of numbers always seems to me be of very peculiar cherry picking type so thats not to say the trend will continue downwards.
Note last year near the end of the year they ramped the costs right up near the end of the year to hit turnover forecasts (my presumption) - there is the danger they will get sucked into the same this year. Note h1 losses last year were £2.8 mill and h2 losses were £5 mill !!! - the opposite of the operational gearing i would expect/hope for - presumably explained by the "bought in " nature if their sales.
Note h1 losses last year were £2.8 mill and h2 losses were £5 mill !!! - the opposite of the operational gearing i would expect/hope for - presumably explained by the "bought in " nature if their sales.
Not really - cost of acquisition of a customer often exceeds the value of the first purchase. The more pertinent question is the LTV of that customer. ie how long do they stay and how much do they spend over time. Once they are a customer the repeat costs of marketing drop to more or less zero. So increased losses from heavy marketing are exactly what I would expect. What should happen is that those customers make repeat purchases this year so that revenues increase irrespective of marketing and it appears that this is exactly what happened in Q1. Marketing dropped to nothing but sales YoY went up quite a bit. This allowed them to trade close to breakeven in June.
That suggests cashflow figures may not included a deferral of VAT etc but I agree it would be far more helpful to investors if companies told us exactly how much has been deferred and stopped us having to guess. We should prudently assume they have made such deferrals unless told otherwise.
So given this years Q1 performance and the marketing spend from last year being heavily weighted towards Q3 the revenues with no marketing spend should be well above breakeven. The question is how much marketing do they undertake to grow the business further as this will inevitably be a loss making investment until next year.
I worked in Marketing for P&G and was trained the best things to advertise were those brands / products which i) were not well known and ii) have a real point of difference. This is tough in fashion but Sosandar (LON:SOS) fitted the bill well here last year when it rode the animal print trend very well. I am less clear what their halo product is now.
So if SOS were just reaching the level where TV made sense last year, the move onto Next & John Lewis platforms will really support that position as it massively increases the effective distribution ie ability to buy. Many people don't want to open new accounts. (Indeed I wanted this done before they invested in TV but hey ho!). TV spot costs should be right down down as so many companies have restricted their marketing spend. I have noticed many smaller privately owned companies advertising for the first time in my area sensing the same opportunity.
The question is cash and ongoing base expenses vs Marteing funds. I hope their cost base (33 staff with all distibution and manufacture outsourced) is now close to a level that could support £30Mn+ in sales. I also think the margin suppression to 45% will disappear and they will go back to +/-50% gross margin now new lines like denim are established. However, they they have no alternative but to continue to target growth and spend on general Marketing will also help retain existing customers. It is not possible to simply milk regular customers which is what a email/catalogue only stratrategy really is.
But they will almost inevitably need more cash. I will support this call (I hold) only IF the co-owners can demonstrate they have a unique style and products to advertise. Remember their background is as fashion editors, commenting on design vs creating it. I know they did ranges for supermarkets and magazines etc but this is typically derivative not original. Even I know long sleeves work for middle aged women ! For me, the jury is still out on if they can deliver this.
Classic marketing theory says 1. Segment the market, 2, chose your Target segment and then 3. Position or tailor your product to the target. I think they have 1 and 2 done really well. Whether thay can do 3 will determine their long term success. I think the emerging brand platforms like Next and BooHoo's will be able to see and copy success in steps 1 and 2 but with better margins. Only originality will prevent them launching or converting copycat brands.
Sosandar (LON:SOS)
It is not possible to simply milk regular customers which is what a email/catalogue only stratrategy really is.
Surely thats exactly what Sosandar want to do and are all about ? - repeat business that should really not need much prodding to walk back through the door and order again due to the attractiveness of their product offering to their core customer base. To me the big attraction here is the thought that their customers should generally be sticky and therefore it should be simple to milk them for consistent future profits - obviously this stickiness may not apply to "all customers" and i suspect the harder they need to work to get that customer in the first place the less sticky that customer may be. I don't really have a handle on the current stickiness of customers but it kinda seems ok to me - albeit is there a 10 fold pool of similar future customers out there who are happy to be milked on an ongoing basis? hmmmm.
The point around Sosandar (LON:SOS) is that the demographic is 25-70 years old so there is many multiples of the current customer base to go at in the UK alone before they even have to think about international expansion. At least a 10 fold pool, probably 100 fold plus to go after.
Can't remember the exact numbers but I looked at this before and customer stickiness and LTV is pretty impressive.
Paul is right in that this business required far more cash than the founders originally anticipated but that doesn't make it a dud as some people seem to be suggesting. In fact I'd say it is starting to look fairly successful. Management need to continue to drive customer acquisition but they are at the inflection point around that age old debate about whether to continue with losses now to grow profits more rapidly in the future or whether to concentrate on profitability. If you distil down most of the comments on here today it broadly comes down to this debate. Those on the sidelines want a business to show it is consistently profitable before they invest, the others, like me, are happy for a business to be loss making initially as long as it can show a strong return on that investment in the future. Just depends on what type of investor you are. It is one of those shares where I doubt anyone will change their mind irrespective of what is said on here.
I always remember Evil Knievel shorting ASOS, all the way up from around 500p or so I think, and got burned heavily. Similarly lots of shooters around Boo Hoo at 100p when it was just breaking even. People just couldn't see past the PE ratios.
Now I am obviously relatively bullish on Sosandar (LON:SOS) (and long - though medium position only) but I do recognise that it still has a long way to go to execute successfully and will probably raise more money to invest. I'm ok with that risk as I think it is doing the right things. If the facts change though hopefully I will recognise that and change my mind.
The £600k remuneration makes this univestable for me. How can they justify it?
Do you have a view Paul?
Can I just thank HollandSmith and Mr C, plus all the other quality posts to these pages. I know we say it often, but really the quality of this site is enhanced many fold by the unpaid contribution of its subscribers, I'd say this was pretty unique.
Thank you Mike!
link. I have reached out to Stockopedia to see if something like this could become a permanent feature on their site, but with no reply, I guess I am on my own. Any proceeds from this will go towards the development of the code and hosting + email blasts but as I can not guarantee anything, see it as a goodwill gesture for now.
You might have noticed on my post today, I have added a
I know people have an opinion of which https://semantic-ui.com/ skin they prefer, the old or new site, but if anyone has any problems you think can be solved, or data ideas that can be enhanced please reach out to me! I would love to develop the data products which I feel are missing from this site, I am just building up the courage to go in with two feet!
Cheers
Dan
Have one on me, thanks for all your hard work.
I am surprised that Stockopedia has not leapt at your offer. Your daily post adds enormously to the attraction of SCVR, and no doubt to its value as well. I hope Stocko will use their (our?) resources to encourage you to keep going. IMHO your contribution each day is more useful to me than the new website!
Completely agree. I used to look at morning news with research tree, it has an excellent sector/market cap filter on ipad app, but now just come straight here.
Saves so much time
I personally would develop whatever you have in mind to a standalone site when you could then simply post links in threads on various bulletin boards to your work.
You would then have the opportunity to market yourself via other sites and develop your content to a wider audience.
As regards funding, it’s worth bearing in mind that the market for private investors making their own investment decisions is quite niche. Could you be a bit clearer as to what your end objective might be?
Well done on what you have achieved so far.
A hugely expensive RNS license is probably needed for a stand alone site.
I got an email from the LSE when I had a page that sorted RNSs by type, saying I needed a licence.
I took the page down immediately.
MrC
Your idea of sorting RNSs by type would be very useful. I would like to suggest that Stockopedia might consider adding this as an extra feature in the future as I think it could be a unique selling point to private investors?
Every punter’s favourite Sosandar (LON:SOS) shares are going up this morning. However, from my read there is still no sign of escape velocity being achieved and an almost certain equity placing needed now that they are down to £4m in cash. Buyer beware!
Please do read announcements a bit more carefully. Cash burn between end April and end of July was.....drumroll please.....zero !
Ha ha!! Good luck with that. They have nowhere near enough gross margin to cover the current operating cost base. Perhaps you think they aren’t going to ever spend on marketing again. See you when the next placing comes along.
Let's assume that it's the Berkshire managers that brought into the gold mine, rather than Buffett. No doubt they were attempting to emulate the Buffett philosophy, but I don't have access to the Barrick metrics, nor info on Barrick's management capabilities.
Is there anyone with specialist miner knowledge who can draw a parallel to a "similar" UK listed gold miner?
I have the ETF £SGLP and had it for a while - its done well.
I have quite a few shares in Blackrock World Mining Trust (LON:BRWM) who have over 4% of their portfolio in Barrick Gold and I think about 31% in the gold sector as a whole; I get a dividend of over 5% too!
Barrick used to be the UK listed Randgold, before it merged with Barrick and became American listed only. Randgold had an excellent track record of growth and strong ROCE, highly unusual among gold miners when the price of the metal is drifting, and Barrick is now regarded as one of the few "blue chip" stocks in the gold mining world. There is now no comparable UK listed stock - there are some well-managed operations, but they are all smaller and riskier.
Presumably, as always, the virtue, or otherwise, of the Berkshire investment will depend entirely on the price they paid.
Paul,
To be honest, I'd be very surprised if Warren Buffett has suddenly changed his thoughts on gold as an investment. Berkshire Hathaway is not just Munger and Buffett these days and there are other investment managers (who will eventually take over the reins) who are the one's who probably pushed the button on Barrick. And when all is said and done, it's a tiny investment for Berkshire.
BTW I confess I am not a big follower of Berkshire as it's never interested me as an investment but Buffett doesn't strike me as someone that is going to do a 180 degree turn like this at his stage of life.
All the best, Si
TBF, Buffett (or Berkshire) has not bought gold itself, but rather a gold miner. I think those are two different things.
For instance, if you believe the gold price to stay stable, gold itself isn't a great investment as there is no capital appreciation and no dividends. But at these prices, a gold miner may be pretty profitable, particularly if he can influence its cost base downwards and do the classic Buffett thing of using profits to buyback shares.
Didn't Buffett do a 180 turn on his airline stocks? I think I remember him saying he has no problem doing that when the facts change. I owned no gold before this year but now I do, I feel that coronavirus has changed the macro outlook significantly, and those effects will last long after the virus has gone.
Didn't Buffett do a 180 turn on his airline stocks? I think I remember him saying he has no problem doing that when the facts change.
That's quite different though, isn't it? To change your mind about an investment and sell is one thing, we all do that, but to completely change your view of something that you believe has no economic value whatsoever (see his previous comments on gold) is very different.
Tbh I have no idea why people pay so much heed to what Berkshire and Buffett do. It's been a rubbish investment ,and several poor decisions have been made, in recent years. Others like Terry Smith have taken some of the basic principles of Buffett and Munger and applied them much more successfully.
All the best, Si
Buffett was as negative about airlines as he was gold until recently when he bought into them, obviously he ended up selling down later due to COVID.
Really? 19% CAGR since they started? How much Apple do they own? It's a core holding for many investors.
Really? 19% CAGR since they started? How much Apple do they own? It's a core holding for many investors.
Please read what I write before replying. I quite clearly referred to the performance of Berkshire in recent years.
The reason I have never been interested in Berkshire is because he simply never took the time to understand technology. Yes, someone at Berkshire eventually bought Apple but before that was the terrible investment in IBM. He also completely missed what would have been his most profitable investment ever (Intel) when he was lucky enough to become friends with the great Bob Noyce at Grinnell College in the late 60's.
I'm not knocking the long term performance but in the past 5 years the return has badly underperformed the S&P500. You'd have been much better off holding an index ETF than Berkshire.
All the best, Si
Tend to agree with you Si.
Buffet's star has waned somewhat recently. He made a mistake with Tesco if I remember correctly and his involvement with Kraft Heinz was surprising (considering how run down Heinz was at the time). (Yes it had brands but the business had been starved of investment).
But I do very much get the impression from the outstanding managers such as Terry Smith of Fundsmith and James Anderson (of Scottish Mortgage Investment Trust (LON:SMT) ), that they view their stellar performance levels as something that will fluctuate and they too could have long periods where their investment decisions don't play out as they had hoped.
I was struck by the recent problems caused to Alex Darwall (of European Opportunities Trust (LON:JEO) )by the demise of Wirecard that mistakes will happen. Given Buffet's longevity it is a surprise that he hasn't made more. So, you either believe he can recapture that form or you don't. Your point about tech though is well made. Even if your investments are not in tech businesses surely you have to take enough interest in tech to understand what the tech revolution is doing to those businesses.
Your point about tech though is well made. Even if your investments are not in tech businesses surely you have to take enough interest in tech to understand what the tech revolution is doing to those businesses.
Yes, it's been a very big weak point IMHO. This is someone that personally knew Bob Noyce when he and Gordon Moore were looking for $2.5m to start Intel. As a trustee of Grinnell College he even agreed to the college investing $100k and yet despite Berkshire being worth over $100m at the time he didn't even make a small investment. He knew Bob Noyce was very smart and had already successfully started Fairchild Semiconductor. Intel is now worth over $200bn.
He also grew personally close to Bill Gates in the early 90's but still only bought trivial amounts of Microsoft stock. He had every opportunity to invest in two of the greatest businesses ever and did not.
All the best, Si
"Tbh I have no idea why people pay so much heed to what Berkshire and Buffett do. It's been a rubbish investment ,and several poor decisions have been made, in recent years. Others like Terry Smith have taken some of the basic principles of Buffett and Munger and applied them much more successfully."
While I see where you are coming from, isn't "rubbishness" generally a function of time? i.e. you can name a number of money managers whose star burned brightly for a decade - Woodford, for example. The Buffet phenomenon is keeping it going for many decades.
Jon
I believe there is a great article in today John Aurther column on what is moving the price of Gold. From what I digest, there are three things that are inextricably linked at present: Bond Yields, Gold and a cure for Covd-19-worth a read (nothing personal Paul and I have no vested interest in John Aurther): https://www.bloomberg.com/opinion/articles/2020-08-18/inflation-shock-counts-less-than-covid-for-bonds-gold
Well done, this is spot on... real yields negative = gold up... should they turn gold will fall. My fear is all roads lead to gold and I keep taking profit and keep regretting it... one thing is for sure, the longer it goes on ... the more risky it gets.
If Berkshire is a "rubbish investment" why am I up > 135% on average purchase cost when buying in two tranches (2012 and 2015). Whilst far from my best performing stock it is a long way from my worst. It is better than many other investments over that time including many professional funds, investments trusts, Sosander, MKS and others.
I guess it is a matter of perspective as to what you define as a "rubbish investment". There will always be ones which do better, but they are less than the ones who do worse.
First rule of investing "don't lose money".
If Berkshire is a "rubbish investment" why am I up > 135% on average purchase cost when buying in two tranches (2012 and 2015). Whilst far from my best performing stock it is a long way from my worst. It is better than many other investments over that time including many professional funds, investments trusts, Sosander, MKS and others.
I guess it is a matter of perspective as to what you define as a "rubbish investment". There will always be ones which do better, but they are less than the ones who do worse.
See my other post. Buffett always told his wife to put all his money into a S&P500 tracker when he goes. He should have done it himself five years ago. Fundsmith has returned twice what Berkshire has in the past 5 years. Anyway, well done with your timing.
All the best, Si
Marks And Spencer (LON:MKS) group sales down 10% on last year in the 8 weeks to 8 August. That seems a pretty reasonable result to me given currently little food product is online, a lot of travel stores are still shut, and town centre stores are still not performing well. Online sales up by a decent amount and now represent 40% of total home and clothing stores (albeit a reduced amount). I'm sorry to read 7k people will be made redundant however.
Imminent Ocado delivery of sales should also help. I hold.
My morning smallcap tweet: Tasty serves bitter pill to staff
Tiziana Life Sciences (LON:TILS) OKYO Pharma (LON:OKYO) Faron Pharmaceuticals Oy (LON:FARN) MaxCyte Inc (LON:MXCT) Stobart (LON:STOB) Angling Direct (LON:ANG) Tasty (LON:TAST) Gaming Realms (LON:GMR) Gfinity (LON:GFIN) Northern Bear (LON:NTBR) One Media IP (LON:OMIP) Quadrise Fuels International (LON:QFI) H C Slingsby (LON:SLNG) Robinson (LON:RBN) Sosandar (LON:SOS) Marshall Motor Holdings (LON:MMH), Essensys (LON:ESYS), Bidstack (LON:BIDS), Telit Communications (LON:TCM), Mears (LON:MER)
Tiziana Life Sciences (TILS) gets US patent for treatment of Crohn's disease with Foralumab. Phase 2 trial in Q4. [SP=158 Cap=301m]
OKYO Pharma (OKYO) issue £1.4m convertibles. Also plans a NASDAQ dual listing. [SP=16.5 Cap=111m]
Faron Pharmaceuticals (FARN) Traumakine continues to be investigated as a potential COVID-19 treatment in global trials. Gets loan to set up commercial scale manufacturing. [SP=455 Cap=213m]
MaxCyte (MXCT) to expand Phase I intraperitoneal delivery and dose-escalation trial of MCY-M11, its lead anti-mesothelin CAR-PBMC cell therapy candidate following the encouraging preliminary results in May. [SP=336.5 Cap=255m]
Stobart Group (STOB) Easyjet confirms closure of its bases at London Southend and London Stansted airports.CEO, R.O. Stinted, said "we expect that this decision will create significant opportunity for other airlines looking to take on established, popular and profitable routes." [SP=29.9 Cap=187m]
Angling Direct (ANG) guides H1(July) rev up 21%. "Despite all retail stores being closed between 24 March and 14 June...the Company was very pleased to achieve strong online sales." Online sales bound to increase when stores closed! Net cash £21m (£13.3m). [SP=49.98 Cap=39m]
Tasty (TAST) expects 86% of sites open in Aug. "Most of the remaining restaurants are not planned to re-open for the foreseeable future...remains extremely cautious regarding trading in September." Staff cut 30%. [SP=2.1 Cap=3m]
Gaming Realms (GMR) continued to trade ahead of market expectations with H1 rev £5m (£3.1m) and adj EBITDA c. £1.2m (-£0.1m). Guides FY materially ahead of current market expectations [SP=21.3 Cap=61m]
Gfinity (GFIN) guides FY rev for Gfinity Digital Media £2m, supporting the Company's target of moving into profitability in Q1 of 2021. Gfinity has also started to monetise a large proportion of its social channels, including Facebook. [SP=3.33 Cap=25m]
Northern Bear (NTBR) AGM stmt: has continued to trade well since prelims in July with a a further increase in site activity levels. Forward order book remains strong. [SP=59.4 Cap=11m]. I hold.
One Media iP (OMIP) £6m placing at 7p, a 3.4% discount. Will fund purchase of Digital Assets. [SP=7.01 Cap=10m]
Quadrise Fuels(QFI) signs MSAR Commercial Trial Agreement with Greenfield Energy, as mooted. Worth $150k. [SP=2.15 Cap=22m]
Slingsby H C (SLNG) H1(June) rev up 5% with June up 50%. Remains cautious that this increase in demand is short term. [SP=175 Cap=1m]
Robinson (RBN) H1. Guides mid to high single digit revenue growth in FY. [SP=129.2 Cap=21m]
Sosandar (SOS) FY(Mar) loss £7.8m (£3.5m). July rev up 57%, up on Q1's 54%, loss down 83%. "Strength in current trading underpins confidence in carefully increasing marketing activity at the end of Q2." [SP=18.16 Cap=35m]
Marshall Motor Holdings (MMH) H1(June) down 24%. Pretax -£10.7m (+£14.8m). "The period following the reopening of showrooms in June has been encouraging with an improvement in like-for-like order take throughout June, July and the early part of August." [SP=127.75 Cap=100m]
In line: Essensys (LON:ESYS) Bidstack (LON:BIDS) Telit Communications (LON:TCM) Mears (LON:MER)
Good morning! Below covers todays regulatory and potentially price-sensitive announcements.
HollandSmith..Outstanding work and presentation.Tony