Small Cap Value Report (Tue 27 Sept 2022) - SAGA, BIFF, SUS, DBOX, SMV

27th Sep '22 by Paul Scott

117 comments 9418 reads

Good morning from Paul & Graham.

Agenda -

Paul's Section:

Saga (LON:SAGA) (I hold) - rather lacklustre H1 figures. It's moved back into profit, but only £14m in H1, and full year guidance is reduced again, from £35-50m previously, to £20-30m now. Debt is high, as expected, but covenants & liquidity are fine, and the going concern note is positive. Overall, it's a bit flat, but what do you expect when the share price has dropped by about two thirds in the last year?! There's nothing of concern in the numbers, but it's not madly exciting either. I'm happy to continue holding (well, happy is probably overstating it!), as shares should recover in due course. More detail below.

Graham's Section:

Biffa (LON:BIFF) (£1,248m) (+28%) [no section below] - the offer for waste management company Biffa has finally been announced, having originally been notified back in early June. Unfortunately, the price is 8% lower than the original proposal: 410p (plus a 4.7p dividend), instead of 445p.. Only 14.4% of Biffa shares have been pledged to vote in favour of the deal, so there is no guarantee that it will go ahead, although the latest share price of 408p suggests there is confidence that it will happen.

The reason given for the lower offer price is the “weakening economic environment”, and I think Biffa shareholders can feel disgruntled on two counts. Firstly, the most recent results - FY March 2022 - saw record revenues, helped by a post-Covid recovery with seemingly good momentum (adjusted operating profits £97m), although of course the last six months have been difficult. Secondly, the pound has depreciated against the dollar by 14% since early June, when the possible deal with this United States-based investor was first revealed. In dollar terms, this offer is much cheaper than the original June proposal (roughly $4.43 per share instead of $5.56 per share). But it looks like Biffa’s shareholders are happy to offload it and aren’t overly fussy about the exact price of the deal. (no section below)

S&U (LON:SUS) (£254m) - strong interim results from this motor lender and property bridging lender, with a long history of management and ownership by the Coombs family. Growth in property bridging continues at a terrific pace, while collections in non-prime motor lending are surprisingly positive. While I’m as nervous about the economic situation as anybody…

Unlock with Email

Unlock with Google

Already have an account?
Login here

hawkipa

27th Sep '22

I need to check the prospectus for exact clarification on which ones, but there are covenants in the bonds. It's simply not the case that any lowly rated issuer could get away with no covenants. I think they might be leverage and interest cover, but possibly others too. No equity holder should be under any illusion though that bondholders won't be speaking their mind to management on matters. A company like Saga knows they will likely need the bond market going forwards. I would be suggesting them to do a liability management excercise on both bonds and roll them both up into a longer dated higher coupon deal, but get breathing space on maturity. Banks would like that too. Or buying back debt would generate a b/s gain for the company is a well travelled approach if the cash is truly being held for the 24 maturity. They won't though be thinking only about the 24 maturity in isolation. They have to have a plan for the 26 bond too. There are plenty of approaches to use here but the bottom line is bondholders might force an equity raise if there are negotiations.

Revs8

Love this chart. Very good. Personally I think the major markets are still in Denial.

Stocks123456

People were not saying "disastrous" when the market boomed on the back of the vaccine in 2020.

I've made money out of several of those names but I don't own any of them now and my portfolio is up over the last few years on the back of finding stocks in the SCVR.

Its just a very bad time if you are a buy and hold investor ( which I am not ). Maybe in a few years time I will wish I hadn't sold out? Who knows?

Now I understand your comment. Too cryptic for me!

Great to see such an active SCVR discussion board (whatever the reason).

OldSchool05

Sorry to hear about your employment situation TommyH. Hope things improve.

Harry Hindsight

I trade Thungela Resources (LON:TGA) so I can stay afloat - pretty much like the world economy.

DaviStoVest

Small caps are not 'where it's at' just now ... and I don't think they will again be 'where it's at' for another two or three years. Small caps in general are not going to deliver good returns or be a good place to invest at acceptable risk for a few years ahead, I believe ... although their day will surely come again in, probably, just a a very few years' time.

That renders SCVR (as it is now) a bit of a side-show, I think. I believe now might be the time to 'reinvent' (or, at least, realign) Stocko's premier blog. The way I see it 'how to make smart investment decisions on the way into and out of a stock market crash' is the central problem that most of us face.

And I'd like to see SCVR refocused on that.

I too have been put 'at risk' 30 day notice thingy. Seems a theme. So resources moving around employers would be good for recruiters maybe.

Agree have no interest in fashion or restaurants for the long foreseeable future, or ten pin bowling lol. Commodities, energy, financials maybe and USD earnings.

The SCVR provides a huge valuable resource of past articles to go back and see what the view was then and how panned out to today.

There will be cigar butts out there and the SCVR is tasked with finding them - just put them on a watchlist with an alert rather than putting in the cash. Sad but it's investing in a shark pool where you are the food.

I rely on peoples opinions not DYOR - hence rely on Stocko quick assessments. There is no blame game here. We are responsible for pressing the button. There will be 'oh but he said etc' - I dumped IC on a Mr T's studies but my fault - there are no guarantees. He's had a hard time I think with reputation as well.

My biggest duds are Boohoo (LON:BOO) and THG (LON:THG) - but as noted above it's discipline and obeying your stop loss rules not dreams. Sell your losers in good time - not keep in hope they recover - sell and buy again on the up if have the same conviction - but who does that - not me lol.

KevinS1

Good luck Tommy. I hope it all works out OK.

AnonymousUser1822519

During a recession and an early stage bear market, I wouldn't risk my hard earned cash on any stocks right now except for energy and mining stocks. Missed out on the TGA rise which is a shame, but that is one heck of a dividend yield.

I think both Trinity Exploration and Production (LON:TRIN), Jadestone Energy(JSE) are good plays. Both have zero debt, strong cash balances, increased EPS for 2023E and are currently engaging in share buy backs. I'm watching Afentra (LON:AET) as that is good also. I've completed a trade on Sylvania Platinum (LON:SLP) with 20 percent profit and will look to buy back after a deeper pullback.

So far this year, I'm up 20 percent overall so I'm happy. Pity I didn't short the DOW in the last rally. I was shorting it but always tended to short it too soon, and eventually gave up.

Lochinver

Been using Stockopedia for a couple of years now after a long career as an FD ( never CFO….) in medium sized uk manufacturers, often PE owned. Didnt expect to be fifteen percent and many thousands of pounds down in that time.

Thought I knew a lot about this game - SCVR taught me I was wrong about that. Have learned so much, and have subsequently taken actions that have prevented those losses being at least double . For that I am grateful for stocko.

We seem to be in a period of constant crisis - I cannot recall anyone predicting this three years ago. So who knows what the future holds. If I was in it for the short term I would have adopted the traders’ tactic of stop losses and constant dealing. Not for me.

I have always been an independant thinker so there has been no need for the daily general reminders to DYOR. It would be unthinkable for me to risk my and my families money based purely on others’ thoughts. And i find it almost inconceivable to think others would do so. I like to take SCVR thoughts and put it through my own scrambler , based on over 35 years experience out in the field.

Always thought Sylvania Platinum (LON:SLP) was just catalytic converters play but platinum is used in many other things and a byproduct is iridium in an awful lot of other things and scarce resource which is getting scarcer (or stockpiled) and harder to dig up by the day. Wan't to know how can buy/hold/invest/benefit from gold - but other than stashing it under a concrete slab aka John Wick don't know the answer.

Hi GarryC,

That's my understand also, that it's just a catalytic converter play. So wasn't trading it based on expected future demand of PGM's because I can't be certain, but on its chart pattern(rectangle), and swing trading as opposed to buy and hold.

I thought the best way to invest in gold is in buying gold stocks?

eParo

Read the small print. DYOR

Paul Scott

28th Sep '22

Hi ACounsell,

Thanks for flagging up that some REITS have crashed in recent days, I hadn't spotted that. Warehouse Reit (LON:WHR) is one of the few that we've covered here in the SCVRs, purely because a shrewd friend told me about it over lunch quite a few years ago, and with warehouses at the time providing nice yields (about 7% from memory) in a zero interest rate environment, and being valued at below rebuild cost, they looked so good. I was kicking myself for not buying at about 100p per share, and watched as they slowly, gradually rose to about 160p.

Then suddenly, bang! All those gains gone in just a few weeks. Incredible.

With interest rates, and bond yields, shooting up so much, so fast, this all looks highly destabilising.

It's looking increasingly obvious, by the day, that the Fed has adopted a strategy that could be disastrous, especially for other countries now being dragged along in its wake. With so many (arguably over-priced) assets now crashing - shares, bonds, property, you name it, this could trigger another banking crisis like 2008 - with forced liquidations, deleveraging, banks not knowing which ones have the bad debts hence a reluctance to lend to each other.

Maybe we're not far away from a policy reversal, and slashing interest rates again, with more QE to stop the whole system shaking itself to pieces again? Trouble is, no other country can do that, as it would invite a run on their currency. QE only works if everyone does it at the same time.

So yes, very worrying indeed, recent developments.

Regards, Paul.

Silver Moon

If this is the case then we should be seeing an uptick in the current share price. It still looks like jam tomorrow to me having bought and held since 2016.

Loki

7th Oct '22

Hi Paul,

I hold SAGA shares ( Saga (LON:SAGA)) and read your view on SAGA. I read then FT article "Saga cuts forecasts as inflation drives up cost of claims". FT article states "Euan Sutherland, chief executive, attributed the cut to the forecasts to the effect on Saga’s insurance underwriting business of the “underlying inflationary environment around insurance claims”.".

Please can you provide your opinion on SAGA's insurance business? Would it continue to be a drag on SAGA considering reduced competition in insurance sector while claims rise? Or in your opinion, it's not something to worry about.

Thanks.

Small Cap Value Report (Tue 27 Sept 2022) - SAGA, BIFF, SUS, DBOX, SMV

Agenda -

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

117 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...