Small Cap Value Report (Tue 2 Mar 2021) - CALL, BOO, DX., FCCN, CARD, HOTC

2nd Mar '21 by Paul Scott

119 comments 14397 reads

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

Agenda -

Cloudcall (LON:CALL) (I hold) - yet another placing! (at 81.5p)

Boohoo (LON:BOO) (I hold) - Sky News article re Leicester supply chain (again!) and investigation in USA

Dx (group) (LON:DX.) - Interim results - shares look too expensive still

French Connection (LON:FCCN) - one down, but three more enter the fray - there are now 4 interested parties discussing a possible takeover. Formal Sales Process launched today.

Card Factory (LON:CARD) - Liquidity update, from last week

Hotel Chocolat (LON:HOTC) - Interim results

Cloudcall (LON:CALL)

(I hold)

Share price: 81.5p (pre market open)
No .shares: 38.8m + 9.2m new shares = 48.0m
Market cap: £39.1m

Equity fundraising

This was announced last night, with a follow-up announcement this morning, giving the result.

This is what I posted last night in the comments section of yesterday's SCVR, which many readers probably haven't seen yet -

Cloudcall (LON:CALL) fundraising - not again!!! Checking my notes, the last comment here was on 22 Jan 2021, where I flagged that net cash had fallen to only £3.6m, and expressed my displeasure with the company's performance.

On the upside, the recruitment sector which CALL mainly serves, seems to be recovering well.

Guidance provided in today's RNS for 2021:

Additionally, the Directors are now confident in providing new guidance for the 2021 financial year (for the twelve months to 31 December 2021) and now expect to achieve revenues of £14.0 million, representing an approximate 18 per cent. increase on 2020 revenues.

Not bad, but not amazing either, considering 2020 was suppressed somewhat by covid.

Guidance for 2021 costs is also provided:

The Company is also providing guidance for 2021 operating expenditure, which is expected to be approximately £16.9 million compared to 2020 which is expected to be approximately £13.9 million (including one-time COVID-19 related savings). More details are included in section 3 below.

I'm assuming we can deduct operating expenditure from revenues (as opposed to gross profit), so that would imply a £2.9m loss in 2021.

There's strong operational gearing here, with c.80% gross margins.

Longer term guidance:

Longer term, we continue to focus on achieving monthly EBITDA breakeven by mid-2023 and £50…

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MichaelFBS

2nd Mar '21

I have the Aeron in France and the Mira (Mira is cheaper) in the UK and to be honest you can not tell the difference. Both picked up on eBay and because they are so well built the second hand ones are as good as a new one.

You can pick a Mira up on eBay for £300 delivered and it is worth every penny. Will decades literally. Worth the money.

WhaleHQ

I think this later Guardian article sums up the situation rather well.

https://www.theguardian.com/bu...

Last year the CBP issued 13 such orders, more than in the previous four years.

Simon Bowler, an analyst at Numis, said: “Orders to prevent the import of product under these regulations look to be rare, and the nature of an investigation across a complicated supply chain that is in the process of being overhauled, for which no evidence of modern slavery has yet been found by current UK enforcement bodies, means that the direct risk arising from these letters feels remote.”

Momoko Miyamoto

insider trading I suspect. (I also hold Allergy Therapeutics (LON:AGY) )

I also suspect the "pent up demand" may underwhelm. The surplus savings have largely accumulated to the already well off and many millions of people have been pushed into financial difficulty. Without the helicopter money as seen in the USA I think a consumer recession is more likely after a short lived spike in spending.

£BOO. Yes indeed. As I understand it this is a man whose father came over from Kenya from nothing and started with a market stall. Who has made something from nothing. The drive, hard work and shear determination to succeed and to achieve what he has achieve is extraordinary and yet the press have found every excuse to try and destroy what is without doubt a success story.

Do I wish I didn’t hold it? Maybe but not because of ESG concerns but simply though I believe that the share price will be multiples higher in say three years time it is going to be a difficult ride and mentally I am not very good at handling that.

I am bot going to sell until the results in April or if there is an import ban from the states. That said it it has convinced me that overweight positions really are not worth the grief.

I hold.

I have not known investing without Stockopedia. I started in investing in 2012 and subscribed in 2012 after reading a David Stevenson article in the FT. But two spring to mind Boohoo (LON:BOO) 44% CAGR over five years and Globo got out with a small profit!!!

I also invested in Bioventix (LON:BVXP) (still hold) in October 2015 after watching Paul interview Leon Boros.

KevinS1

I did a search on e-bay and found a site doing reviews for chairs that weren't as expensive but were as good as the Aeron. Paid £225 for an equivalent and its fab. I couldn't justify £1k+ for an office chair when the wife has an Ikea one...............

Rusty2

I got to know about Stockopedia because of Globo, was debating that on IC and looking for more information I came across Paul’s postings, I always felt there was something wrong with it, figures did not seem to add up to me.

Bioventix (LON:BVXP) was the first share I bought because of Stockopedia and the Leon Boris interview, I did sell out last year but have bought back in again fairly recently.

Dojosan

£IQAI + £ DMTR also biotech , I think also £TERN , also Frontier Ip (LON:FIPP) , Blackbird (LON:BIRD) has interesting tech and IP

Boon

I think the PrimaryBid offer did poorly for Cloudcall (LON:CALL) because the fundraising was announced after market hours (so some investors might not have known) and was open just overnight.

Also the placing was done at no discount to the share price at the end of the day - so there were no tasty discount to lock in instant gains.

The more encouraging thing was that the bookbuild was well over-subscribed given no discount to prevailing market price.

Will be interesting to see who picked up more shares. A US Investor maybe?

Also telling, management did not dip into their own pockets to participate... and in fact are renegotiating themselves a better incentive scheme, for up to 15% of shares instead of the 10% before...

Gromley

I also suspect the "pent up demand" may underwhelm. The surplus savings have largely accumulated to the already well off and many millions of people have been pushed into financial difficulty.

I don't really agree with this. Whilst I do agree that all the talk of pent up demand and 'accidental savers' misses the fact that many people have been financially devastated I think it is more complex than that.

There is a risk of over-stereo-typing this, so I apologise in advance, but as it see it :

The two, financially, winning groups are :

Those who have continued to work and be paid in full, but have had reduced opportunities to spend. There is an over-representation of the better off in this group and to be honest I would include the retired and fulltime private investors in this grouping. They'll be booking those cruises and expensive social experiences to make up for lost time.
Those who have been on furlough and received 80-100% of their normal pay and again seriously reduced ability to spend. This is quite a broad grouping, but I believe there are many youngish people in this category who in normal circumstances dispose of a large part of their disposable income. Pubs, clubs, high street shopping and football matches Yippe!

On the other hand the , financial, losers are :

Self employed or small business owners who have fallen outside of the Government support schemes. My gut feel is that a large part of this grouping is quite frugal with their personal expenditure in the first place, so whilst I know they are hurting and will take time to recover, they probably weren't making massive personal spend in the first place.
Those whose jobs have been canned entirely as a result of the shutdowns. The low paid are a disproportionate part of this grouping; but many have periodic experience of struggling to get by only to bounce back when they manage to secure another job.

So on balance I do think there will be a strong bounce back economically. However, other than a short term pressure relief splurge, I cannot really see any reason for greater economic activity than before. So I'm cautious of companies now valued higher than pre the pandemic, unless there is a good reason.

I see McColl's Retail (LON:MCLS) shares are up 33% today, their stores are going to be rebranded as Morrison’s.

GloucesterBob

If French Connection (LON:FCCN) is a "is an internationally recognised, long-standing brand that has considerable value." do we know any UK companies with international aspirations, who may be interested in taking it on and introducing it to their ever growing marketplace?

Feels like a good fit to me and may move the news on.

Only some (more) of the McColl's Retail (LON:MCLS) stores herbie and this was pretty much already known from previous disclosures.

They are actually up more than 50% over two days (announcement was on Monday). I bought back a small position a few weeks ago so I'm happy with the reaction, but my finger is hovering over the sell button now as it is not at all clear who makes the most money out of Morrisons Local - I suspect I know however.

Bromley, OK thanks, it was not clear from the announcement if it was all or just some as said 300. If it was already known then why are the shares up 50% this week?

It seems that this is just a name change on the 300 stores, so I’m not sure how much benefit it will do. I don’t have any McColl's Retail (LON:MCLS) near me. But it could be a possible takeover?

I' have followed the Morses Club (LON:MCL) story quite closely (investing off and on for a while) so I knew that this was about 1/3rd of their stores (the bigger ones - mostly I believe ex Somerfield, ex CooP .

It's more than just a name change, it changes the brand range and the operating model too, the rebranded stores reportedly outperform significantly; but I am still unclear who benefits most McColl's Retail (LON:MCLS) or WM Morrison Supermarkets (LON:MRW) .

When I said it was already known that was probably too strong. It was in the public domain that they were in discussions about more conversions and it was a no-brainer there would be some more and to be honest 300 is not IMHO a surprising number.

So why is the share price up 50%? Well I understand a couple of analysts have gone really positive on the "news" and substantially upped their guidance, Whenever I have taken a detailed interest in a company over a few years I have formed the opinion that the 'analysts' know next to nothing and understand even less. Maybe there was a lost opportunity here for me to better understand how they would react and reap the benefits?

It seems to me highly likely that McColl's Retail (LON:MCLS) will be bought out by WM Morrison Supermarkets (LON:MRW) at some point, but unless McColl's Retail (LON:MCLS) can actually prove their business model then there may not be too much of a premium. I suspect that WM Morrison Supermarkets (LON:MRW) will be quite cautious given that their last foray into convenience grocery was such a major disaster.

Currently long McColl's Retail (LON:MCLS) , but tempted to sell as I think this has been overblown.

Paul Scott

Hi Mr.Corbett,

What I'm focused on with Boohoo (LON:BOO) is the financial results. Ultimately over time, this will drive the share price, and overcome any worries about the supply chain, which is in any case being dealt with comprehensively.

The key thing is that none of the numerous press articles, and social media comments, have had any impact on BOO trading. The customers are clearly not concerned about ESG. Trading updates have been consistently strong, with expectations raised, not just during lockdowns, but also last summer when the shops could open.

I wonder if the alleged threat to its US operations could be overcome by creating a new US subsidiary, and operating from & distributing within the US, instead of fulfilling from the UK?

It's very easy to get deflected from a great investment, by background noise, which in this case can sometimes become deafening. But each time the share price plunges on this issue, it bounces back, because of the strong fundamentals.

I know a lot of people get frustrated, because so many private investors have such a short attention span, and want instant results. Whereas I think it's better to focus on the long term. BOO is going to be a much bigger, and much more profitable business in 5-10 years time. That's all that matters. Everything else is just a distraction, in my view.

Regards, Paul.

Richard Goodwin

They are all British as well, few imports (apart from Premier League footballers)

gtrdave

3rd Mar '21

Many thanks to everyone who responded to my questions about PrimaryBid.

dahokolomoki said: "I think the PrimaryBid offer did poorly for Cloudcall (LON:CALL) because the fundraising was announced after market hours (so some investors might not have known) and was open just overnight".

I thought all PrimaryBid placings were announced after market hours giving investors quite limited time to research the company and make funds available, but I could be wrong on this.

"Also the placing was done at no discount to the share price at the end of the day - so there were no tasty discount to lock in instant gains".

"Also telling, management did not dip into their own pockets to participate... and in fact are renegotiating themselves a better incentive scheme, for up to 15% of shares instead of the 10% before..."

Your points provide a good explanation of the lack of interest in the Cloudcall (LON:CALL) offer from PrimaryBid.

TangoDoc

I have a very modest holding in Card Factory (LON:CARD) so when it fell, I wasn't much troubled and concentrated elsewhere. When I finally got round to it, before taking the loss and moving on, I decided to do some proper homework on it which included watching a video presentation from several key employees. The most impressive of these were the chaps that analysed the sales. I had no idea how complicated the business was, how aware they were of operating in a slowly dying market and how much attention they paid therefore to squeezing the last drop of cash out of the potential customer. I was immensely impressed. I liked the fact that they printed 75% of their cards too. This looks like a hard nosed, savvy organisation.

I could not see how any bank could benefit by pulling the plug right now, so decided to hold on. It was mainly indolence on my part but also a pure gamble on a 20% residue of equity. In addition, it did seem likely, as the vaccine programme appeared to take a grip, that High Street activity was about to rise and a massive release of pent-up frustration after a winter of enforced austerity might be more reflected in sentimental pocket money splurges rather than big ticket buying. Who knows? It would seem that I am not alone.

Small Cap Value Report (Tue 2 Mar 2021) - CALL, BOO, DX., FCCN, CARD, HOTC

Cloudcall (LON:CALL)

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Paul Scott

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