Small Cap Value Report (Tue 26 May 2020) - CLBILS, RBG, SCS, FOXT

26th May '20 by Paul Scott

99 comments 9789 reads

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

Estimated timings today - I've started early, so the bulk of the report should be published by 1pm official finish time. Update at 14:46 - today's report is now finished.

Edit: somehow I missed this earlier, but it's important so here we are;

I've been forced out of my index shorts again over the weekend, with a thumping loss. I might leave that alone for a while. Still, I suppose when you make a loss on a hedge, that means it's worked. That's what I'm trying to convince myself of anyway! I wonder if, with the re-opening trade now gaining momentum, maybe people might be tempted to bank profits on their over-priced tech shares? (see interesting discussion in comments section below).

Judging by how busy Bournemouth beach was over the sunny long weekend, it looks as if the public is tiring of lockdown. That could have nice read across for when (some) retailers re-open shortly, and for the hospitality sector next (from July). Some people seem gung-ho about being able to shop & eat out again (I definitely am), whereas others remain cautious. We don't know the split. Opinion polls are useless, because in a situation like this, I think people give an answer that they think they should say, which can be very different from what they subsequently actually do! I'm very interested in what attitudes readers are experiencing in your network of family/friends/colleagues?

It will be fascinating to see how it all pans out. I'm not convinced that enough people would head for the shops & restaurants again to make them financially viable, at least in the short term, and if there are social distancing restrictions (which takes all the enjoyment out of shopping or dining out). If revenues are down say 30%+, then hardly anything on the High Street would make any profits. Leaving sites mothballed & staff on furlough could work out cheaper, particularly for sites which were marginal in the good times. Hence I reckon we might see a tentative re-opening by some retailers, of only their best sites to begin with. That…

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chrismorris44

26th May '20

Is this the same barnetpeter who used to be on the Michaelwalters.com site and was a big fan of covered warrants?

ken mitchell

I don’t think it was unfriendly, but just pointing out that using the word “will” is too strong. None of us can be that certain our opinions are right. Paul has made it very clear that Revolution Bars is high risk, but could also be high reward. That’s a balanced assessment. If he wrote “Revolution Bars WILL multi bag and WILL certainly be a high reward share,” he would be overstating his case.

JamesHolmes

Seems I’ve accidentally landed in the LSE or ADVFN BB today

peterthegreat

Hello davidjhill,
Pleased to see some discussion of Byotrol here as this is one of the very few stocks I bought a few weeks ago because of the impact of current and future coronaviruses. Like Timarr I thought that if the company can't now become a major success story then there must be something wrong with its managment as it is in exactly the right sector at the right time and ia already an accredited NHS supplier. I am affiliated to an NHS-related organisation (not employed) and tried to help out by getting some of Byotrol's hand sanitiser for the organisation but was only offered personal sizes (50ml) and this was done as a favour, so there is no question that demand is outstripping supply. For me, the big question is the quality of Byotrol's management as financial progress at this company has been slow, and previous attempts to exploit the US market have flopped. Assessing the company is not helped by the fact that it is difficult to judge whether some deals are significant owing to the absence of figures. I am a bit puzzled why the company has not provided shareholders with information on how it is increasing capacity when it says that, basically, it can sell products faster than it can make them. Surely it should raise funds if necessary to increase capacity as increased demand for its products is likely continue for an extended period. My opinion is that the company does not have enough money and probably lacks the marketing expertise to exploit the consumer market (particularly in the US) so should now exit this sector and concentrate on business to business/NHS where its regulatory approvals and antiviral scientific validations are particularly important. Should be an excellent fit for Tristel but Tristel's management is conservative so will probably want to wait.

Michael C

Why do you feel that way?

Seriously, I'm not getting at you, I just wondered why today's comments elicited that response.

simoan

I know others see Microsoft as a key favourite at the moment too.

May I ask why you see them so favourably? Is it primarily linked to the lack of advertising exposure vs Google + Facebook?

I've been a very long term holder of MSFT. To be honest, I nearly chucked it in during the Steve Ballmer years - buying the Nokia smartphone business has to be the all time nadir for the company. The turnaround by Satya Nadella in the past six years has been quite astonishing, particuarly in the way the company culture and its "not invented here" mentality has been changed and that new profitable areas of business have grown from nothing.

IMHO the intelligent cloud (now including quantum computing services) and all things connected to it has only really just started. MSFT is the best pure play on the intelligent cloud theme given that the market leader (AWS) just seems to be a profit engine to keep a huge loss making retail and logistics operation afloat.

The lack of exposure to cyclical things like advertising adds to the appeal, but really I just like that it doesn't matter how the pandemic changes working practices in the future, Microsoft will profit no matter what.

All the best, Si

jonesj

Laser printers & toner refills work OK for me. Just need to make sure the laser printer doesn't have one of those evil chips to prevent DIY "recycling" with new toner.

Paul Scott

27th May '20

Thanks Will.

I took particular care to see how many of their stores ScS are opening.

It took a while to ascertain that it was all of their English stores.

Hence the wording of the above article being correct, and took me about half an hour to confirm it was correct. A small detail, but I try to get things right. It's this attention to detail which is why there are very few errors in my SCVRs - I take pride in them, and make sure everything is correct.

When was the last material error in the SCVRs? Exactly - pretty much never. There's a reason for that - because I check every single thing, meticulously, every day.

Regards, Paul.

What the hell?! Explain yourself please James!

Be careful, and make sure you own the risk.

People tend to blame me when things go wrong, and absorb the good times like a Bee Gee when things go well!

Well said, Ken.

I strongly dislike the word "will". We are predicting the future. Hence we should use words like "might", or "could".

Saying "will" involves a ridiculous level of certainty. Don't do it!

WillBarraclough

Sorry, I didn't for a moment mean to suggest you'd made a mistake, and I wasn't questioning your statement that SCS was opening all stores, just the interpretation with respect to the wider retail sector being motivated to open selected stores first.

I was simply offering a theory that SCS might be an outlier with respect to the decision to open all stores because with a make-to-order business model, all stores could be profitable. I think your idea that retailers will (more widely) open profitable stores first makes a lot of sense.

Thank you.

clarea

Hi if I have it right then Paul that's future lease payments being now treated as liabilities under new rules seem to remember the change took French Connection and one I hold Macfarlane from net cash to net debt because of the change ?

Thanks

abtan

Thank you for your response Si

Hi Paul,

A few comments on Scs (LON:SCS)

CASH POSITION

You said:

"Net cash is therefore £36.3m. This has mostly been customer deposits in the past, and probably still is."

I actually think this £36.m is pretty much all unrestricted cash in the company's accounts.

From my notes:

50% pay cash/credit card. Need to pay a deposit, then finalise payment 8 weeks later, before delivery
Customer Deposit =minimum £59, but can choose to pay more
50% take finance option and SCS is paid this from financing company 2 days after customer receives order
Supplier is paid 45 days after delivery on average, by the end of the month following delivery.

All suppliers will have been paid by the end of April (shut down from March 23rd). If there are any customer deposits, these "should" be minimal.

At a current market cap of £55m, this implies to me an EV = £19m

This looks good until we examine break-even gross sales required....

BREAK-EVEN GROSS SALES TARGET

The below is a little grainy (and I've completely taken out 2019-20), but my rough assumption is that £285m gross sales will be required in any one year to break even. This is 15% below the 2018-19 performance.

I guess the worry is that gross sales will be much lower than this, not only in the current financial year (which ends in July), but also next year.

For reference, this is what the figures look like with a 30% top-line decline, an operating loss of £15m (£14,638k):

With everything so uncertain at the moment I am more minded to sit on the sidelines until disposal income figures are clearer and the country knows where it is going.

In the meantime the company "should" have enough cash to get through a couple of years, even assuming gross sales are 30% lower than previous highs.

alpha2

Hi Tony, No offence taken! I too am far more knowledgeable about horses and have shares in one or two at present.

However I did used to be MD of a similar business to RBG. RBG were struggling before all this and I don't believe the problem will be solved with more debt.

Handicapped to the hilt.

I think I used the 'wills' to talk about how the day to day operation would happen, not the financial performance. I do not think that social distancing might or could have an effect on revenue, it will.

Similarly any restrictions to capacity at peak times can remove the profitable element. The cost of having a cocktail bar and kitchen staffed for a busy period is fixed. The only way to reduce it as a % is to push sales through faster which 2m distancing will necessarily impinge.

This might have the effect of rendering the businesses unprofitable.

Hugh

Dose

Absolutely - I understand risk reward :) im responsible for every penny ultimately. Thankful that theres good coverage on the stock..

For anyone interested the company has replied to me and confirmed that Scs (LON:SCS) customer deposits as of yesterday was £20m, so company unrestricted net cash = c£16m.

That gives it an EV of c £39m (market cap £55m)

Wimbledonsprinter

Steve

I am registered with Primary Bid. My online broker is Hargreaves Lansdown. I have bought shares with Primary Bid twice (most recently Compass). Transferring the shares to HL has not been an issue. The Compass shares are already sitting in my HL account.

Small Cap Value Report (Tue 26 May 2020) - CLBILS, RBG, SCS, FOXT

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Paul Scott

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