Good morning, it's Paul here. I'm back, after a long weekend in Warsaw.
It was a pleasure to read Jack's SCVRs on Fri & Mon. I'm just a bit worried that he's set such a high bar for me to live up to now!
Estimated timings - there are loads of company results out this morning, I've jotted down 11 companies already. The trouble is, most of them are things that don't interest me at all - i.e. where I see little prospects for them to be decent investments, based on lacklustre track records. So I'll start with the most interesting company results, and then switch into quick review mode for the others. I've got nothing else on today, so will keep going until I expire.
Update at 15:40 - sorry, got side-tracked. I'm back on the case, should be done by 6pm.
Update at 17:25 - today's report is now finished.
Today's agenda is;
Scs (LON:SCS) - positive trading update
Sigmaroc (LON:SRC) - just flagging up an investor webinar
Ten Entertainment (LON:TEG) - trading update buried in an RNS about new CEO
Luceco (LON:LUCE) - Interim results
Alumasc (LON:ALU) - Results
Flowtech Fluidpower (LON:FLO) - Half year results
Gaming Realms (LON:GMR) - Interim results
Michelmersh Brick Holdings (LON:MBH) - Half year results
Reminder - if you're going to post a comment, asking me to look at something, then there's a much higher likelihood of me doing so, if you tell me why the announcement & the company looks interesting. A few key points might get me interested, and want to put in the work. Remember that I'm a professional investor, not a hack! So I'm happy to research things that might make us all some money.
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Scs (LON:SCS)
Share price: 173p (up 10% at 08:27)
No. shares: 38.0m
Market cap: £65.7m
(I'm long)
ScS, one of the UK's largest retailers of upholstered furniture and floorings, today issues the following trading update ahead of announcing its preliminary results on 29 September 2020.
ScS has an unusual year end, of 52 weeks ended 25 July 2020. It accounts on a weekly, rather than monthly basis. I tried that once, and it does't work very well, because the monthly management accounts randomly change from 4 weeks to 5 weeks, thus making it more difficult to gauge performance during the year. Monthly accounts are much better, but it doesn't really matter from our point of view, because we don't see the monthly management accounts.
Today we are updated on trading for the 6 weeks to 5 Sept 2020. This is the new financial year to date. It sounds very good, and is ahead of expectations;
Trading since the start of the new financial year has remained strong, with like-for-like order intake growth of 51% for the six weeks to 5 September 2020. This growth, which is equivalent to £19m of additional revenue, has significantly exceeded our expectations and the Board continues to be encouraged by recent trading.
I'm not surprised they are encouraged, with sales up that much on last year. Or rather, to correct myself, order intake, which is not the same as sales - there's a time lag between the customer placing the order, and the sofa actually being built & delivered to the customer, which would trigger it becoming a sale. A reader pointed this out last time I reported on ScS, in the comments, and it's a great point, worth repeating.
ScS previously reported that sales were up even more strongly, in the period from re-opening, until its FY 07/2020 year end, which is repeated today;
As previously reported, post-lockdown trading was very strong both in store and online. Group order intake increased by 92.2% for the period from 24 May to 25 July 2020.
I think a relative slowdown from +92.2% to +51% is still a remarkable level of increase. No doubt some of this is pent-up demand, but there must also be an element of people re-allocating money for aborted holidays, and savings from not commuting, into making home improvements instead.
ScS price points are low, and these days I don't think we should see its sofas as big ticket items any more. It also sells carpets, and I think beds. Last week, Headlam (LON:HEAD) (I'm also long) mentioned that it supplies ScS with carpets.
I wish ScS would put the figures into a table, and show revenues, as well as order intake, with prior year comparatives. Increased clarity would be good in future. Tables are always better than text.
Results date - is 29 Sept 2020.
My opinion - looks good. The broker forecast consensus for FY 07/2021 looks much too low to me, hence why I've been buying shares on the recent dip. I didn't know there was a trading update out today, so this is a pleasant surprise.
Remember also that ScS has a fantastic balance sheet, hence it has the future capacity to pay out nice divis.
The lighter line above, being the broker forecast for FY 07/2021 seems far too low to me. I cannot see any reason why ScS wouldn't bounce back to say 20-30p EPS this year, the historic level of profitability, given that the new financial year has got off to such a flying start. Put that on a PER of 10-12. quite modest, and I therefore value this share at 200-360p, taking a 1+ year view. That's nice upside from c.156p current price, if I'm right.
I suppose the bearish case might be that, after pent-up demand has fed through, then consumers might retrench, and sales turn negative later this year? Plus of course the second wave of covid risk - I've got some comments on that which I'll save for tomorrow. So it all depends on your macro view, whether this share appeals or not. I understand why some investors have decided to avoid consumer-facing shares at the moment.
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Sigmaroc (LON:SRC)
Investor presentation - Jack wrote a section on this company in yesterday's SCVR, so as it's current, thought I would flag up its upcoming investor presentation, as follows;
SigmaRoc plc, the AIM listed buy-and-build construction materials group, is pleased to announce that, following yesterday's investor call and in response to demand from retail shareholders, Max Vermorken, CEO of SigmaRoc, will provide a live investor presentation of the Group's interim results to 30 June 2020 via the Investor Meet Company platform on 10 September at 10.00 a.m.
These things are available as a recording too, so can be watched at our leisure afterwards.
All companies should provide private investors with results webinars. After all, companies brief their institutional investors at results time, so they should feel obliged to brief private investors too. Failure to do so, means they are favouring one set of investors over another, which of course is contrary to the Companies Act.
I can't begin to tell you how useful I find results webinars. It's a great use of time to learn more about companies, and get a feel for what management are like. So let's have many more of them please!
Ten Entertainment (LON:TEG)
Share price: 139.5p (up 9% at 09:30)
No. shares: 68.3m
Market cap: £95.3m
(I'm long)
Many thanks to davidjhill, who pointed out this trading update, buried in an RNS about appointing a new CEO.
Graham Blackwell, the existing COO, is being promoted to Interim CEO. He has 30 years experience in the sector.
Trading update -
The Group is pleased to have successfully re-opened 42 of its family entertainment centres. Three sites remain in local lockdown, and these are ready to open when local regulations allow.
Initial trading has been very encouraging and is building week on week, proving to be cash generative already...
That sounds positive, although we're not given any figures.
My opinion - I'm a bit annoyed that this trading update was not correctly titled. Therefore, probably like me, plenty of investors would not have spotted it at 7am. All trading updates need to be clearly titled as such, not buried in a (less important) announcement about something else. This has given an unfair advantage to some investors over others.
This share looks cheap, if we look through covid, to earnings recovering back to normal. Personally I think that's only a matter of time. The fact that we now know TEG is already cash generative, underpins the bull case.
As they are large spaces, where social distancing can be achieved (better than pubs), then I don't see why the Govt would be in a rush to close all bowling alleys again, but it depends on how widespread the current upsurge in covid cases becomes.
As we know, bowling alleys are of particular appeal to families with children, and healthy children are at basically zero risk from covid, according to a recent study which said there have not been any covid deaths in the UK for healthy children, which makes the closure of the schools look a remarkable over-reaction. Mind you, I find it hard to blame policymakers for anything, since they were having to make decisions on something completely new and unknown. Companies like Ten Entertainment (LON:TEG) (I hold) and Hollywood Bowl (LON:BOWL) (I hold) should be lobbying hard to ensure Govt takes these factors into account.
This is another share where buying now, could be locking in a high future dividend yield - forecasts for next year suggest divis rising strongly, to a 7.6% yield. If that's right, then buyers now would likely get a nice future income stream, combined with a capital appreciation in due course. Maybe.
Note below the consistently high StockRank, and the fact that the share price has barely recovered from the March lows. Looks potentially interesting to me. I probably won't buy any more though, as it's rather illiquid, and I don't want to end up high & dry with an illiquid holding, if the news on covid gets a lot worse. I'd rather spread my money around in a basket of stocks, so that in extremis, I could exit more easily.
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Luceco (LON:LUCE)
Share price: 191p (up 2% at 10:52)
No. shares: 160.8m
Market cap: £307.1m
Luceco plc, ("Luceco" or the "Group" or the "Company") today announces its unaudited results for the six months ended 30 June 2020 ...
Luceco is a leading manufacturer and distributor of high quality and innovative wiring accessories, LED lighting and portable power products for a global customer base.
A 2% up move on results day suggests that things are pretty much as expected.
I last reported on Luceco here on 19 Aug 2020, with a very positive view of its superb trading update.
Interim results today look fine to me. I've read through most of the narrative, and of course reviewed the figures, here are my notes;
H1 revenue down 13.4% to £71.6m, due to covid impact
H1 gross margin up to 38.4% (LY H1: 35.0%)
Adj PBT atually rose 36.7% to £6.7m - helped by 15% reduction in overheads cost-cutting that was planned before covid, higher gross margin, and £1.0m of currency benefit, plus Govt support
Adjusted figures are very similar to statutory, so adjustments not worth worrying about
Net debt down significantly, by 37.6%, to £22.7m
Balance sheet looks fine to me, no issues. No sign of stretching creditors, such as tax payable, which is good
Cashflow statement also good
Dividend policy made more generous
Outlook comments & guidance look the same as last update, 11p EPS for 2020 is guided, with upside potential if no more covid disruption. It says £0.75m per month potential profit impact if lockdown measures re-imposed in future - great to have this quantified
My opinion - very impressive, but as expected, so I think the current share price is probably about right for now.
Whatever they're doing, they're doing it right! Luceco seems to have benefited from good customer demand for its home improvement electrical products. It seems to have improved sourcing (from China), which has led to increased gross margins. It sounds like the 2020 forecasts could be increased further - therefore I'd say the likelihood is that this share could have further upside potential. It's not expensive at the moment, given how impressive earnings growth has been.
Well done to shareholders here and of course to management, which seems to have pulled off a strong turnaround, at the same time as taking covid in its stride.
Stockopedia has been consistently bullish on it - look at the green StockRank graph below the share price graph below.
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Alumasc (LON:ALU)
Share price: 84p (up 5%, at 15:41)
No. shares: 36.1m
Market cap: £30.3m
Alumasc (ALU.L), the premium sustainable building products, systems and solutions Group, announces results for the year ended 30 June 2020.
I covered its interims briefly in Feb 2020 here. The main issue is a cash-hungry pension deficit, sucking in £2.3m p.a. of deficit recovery payments from the company. That's highly material for a £30m mkt cap company.
A quick skim of the figures, my notes;
£76m revenues, down 15.6% on LY, due to covid impact in Q4
Underlying PBT down 34% to £3.7m, which doesn't strike me as too bad, considering covid pretty much shut down the building sector in Q4
Underlying EPS is 8.2p, down from 12.4p last year. I'm inclined to value the shares on last year's EPS, because FY 06/2020 has to be seen as a one-off strange year, not representative of future prospects, hopefully
Divi resumed, at 2p. It was 7.35p LY, but at least it's a start. Historically the main (maybe only!) reason to hold this share was for the generous divis
Cost savings of £2.4m achieved, and reduced number of sites from 10 to 6. This could mean future profits might settle at a higher level than before, possibly?
Strong start to new financial year
Pension deficit up from £13.0m LY, to £19.3m
Balance sheet - quite a lot of bank debt, but big cash pile too. Pension deficit weakens the balance sheet. Not ideal, but not a disaster either. Note that receivables are likely to grow again, as trading picks up, which would absorb some of the cash.
My opinion - neutral. It's too small to interest me, and I'm trying to avoid anything with a pension deficit, because zero interest rates forever means that pension schemes are probably going to be a long term drag. That's why this share looks cheap on a PER basis.
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Flowtech Fluidpower (LON:FLO)
75.5p (down 2%) - mkt cap £46.6m
Poor results for H1 to 30 June 2020. Revenues down 22%, and underlying operating profit fell to only £0.9m, and there are finance costs of £0.4m to come off that, as I'm interested in PBT, not operating profit, so underlying PBT is about £0.5m - poor, but not a disaster in the circumstances.
Balance sheet has £69.3m in intangible assets, mainly goodwill, which does make me wonder if the group's acquisition spree has created shareholder value, or not? I'm not convinced. Note that inventories & receivables are down a lot vs LY H1, but these should rise again as business re-builds, putting pressure on cashflow possibly? NTAV is £18.0m which is OK actually.
Outlook comments indicate that trading is improving, but no guidance is given due to uncertainty.
My opinion - I find it difficult to muster any enthusiasm for this share. It's been listed over 7 years now, and hasn't made any impact with the share price low, suggesting the strategy & management might not be that great? There could be a share price recovery in H2, maybe, if trading updates confirm improved trading. But that's true of plenty of other shares too, I can't see why I would want to buy this one.
Broker forecasts shown on the StockReport look too optimistic to me, so are best ignored.
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Gaming Realms (LON:GMR)
20p (down 8% today) - mkt cap £57.3m
Interim results to 30 June 2020. The figures look to be as expected from trading updates. Revenues are up strongly, on licensing revenues of its casino games software, especially in the USA. I'm not clear if these revenues are recurring, or one-off in nature, that's vital to find out. The games do look interesting, and the client list impressive, so I think there's possibly something interesting here, but is it worth nearly £60m?
EBITDA has swung into £1.24m profit, but nearly all of that was spent on capitalised development spending. So in reality, it's around breakeven.
Full year outlook is in line with market expectations.
Balance sheet looks weak, and I think it needs to raise more equity to be comfortable. That's not necessarily a problem though, and a decent wedge of cash could be raised for <10% dilution, if needed.
My opinion - overall I'm neutral. The products & client list do look impressive. But I'd like to see more evidence of profitability, rather than aspirations of profitability.
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Michelmersh Brick Holdings (LON:MBH)
101p (unchanged today) - mkt cap £94.7m
A specialist brick manufacturer. Its interim figures for H1 to 30 June are obviously impacted by covid.
Revenues down 17%, and PBT roughly halved to £2.6m in H1 - that sounds alright to me, because business should recover.
Robust order book, same as last year, which suggests it might not recover the lost H1 revenues maybe? Whereas a lot of other companies in various sectors are seeing pent-up demand being unleashed.
Balance sheet looks good, with heavy fixed assets, but mostly funded by equity. No insolvency risk, in my view.
My opinion - neutral. It looks a decent business, and the valuation of 14 times 2021 earnings strikes me as about right.
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Hydrogen (LON:HYDG)
De-listing & tender offer
This recruitment tiddler (mkt cap of only £10m yesterday) is de-listing from AIM. The reasons given are interesting, and this has read-across to many other tiny listed companies;
... the Company is not of a scale to attract sufficient interest from institutional and other investors and therefore it is difficult to create a more liquid market for its shares to effectively or economically utilise its quotation. Furthermore, the Company has been unable to fully utilise its quotation on AIM to issue ordinary shares either as consideration or to raise fresh capital to execute acquisitions.
For the reasons outlined in the Circular, the Board are of the view that the legal and regulatory burden associated with maintaining the Company's admission to trading on AIM outweighs the benefits of a public quotation.
You could copy/paste those reasons to any number of other tiny companies with a listing, but no liquidity in the shares, hence why de-listing is such a huge risk when people buy shares like this.
In this case, it has a happy ending, with a 40p tender offer (a 43% premium) being offered as an exit route for shareholders who can't or don't want to own shares in a private company. That is extremely decent of the people controlling the company (a concert party) and nobody can complain about that outcome at all.
AIM badly needs to refresh itself. We need some interesting, profitable growth companies to join the market. Not speculative rubbish, or dodgy overseas companies, or companies that have had a couple of good years and the owners want to cash out at an inflated price and stuff gullible investors in the process!
Come on, highly paid city brokers, get on the case & earn your 6-figure salaries!
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All done for today, see you tomorrow morning!
Regards, Paul.
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