Small Cap Value Report (Tuesday 11 May 2021) - ULS, ANG, MGP, AIR
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Morning all, Jack here with the placeholder for today's report. Leave a comment below if anything catches your eye, and let us know why it's of interest.
I've been talking with colleagues about that old adage: 'Sell in May and go away, and come back on St. Ledger's Day'. I'm often skeptical of this kind of thing but studies show a 'remarkably robust' result, with returns on average 4% higher during the November-April period than during the May-October. The revised study above includes data from some 114 stock markets and takes into account almost 63,000 monthly returns 'start[ing] with the UK stock market in 1694 and end[ing] with Jordan which starts in 2006.' Sounds comprehensive but who knows what kind of regime changes and all the rest of it we might find in that data set. It's past 7am so I'm not about to check...
And then, of course, the past 12 months have hardly been typical. This will have a direct impact on the next 12 months in my opinion, almost a yin and yang effect with a slowdown and subsequent bounce (assuming we maintain the current course).
Uls Technology (LON:ULS) - ahead of expectations update from this conveyancing-focused software company with £24m of cash to invest.
Angling Direct (LON:ANG) - gross margin improvement and a swing to profitability for this online and physical store fishing retailer looking to expand across Europe.
Medica (LON:MGP) - Elective revenue heavily disrupted but month-on-month improvements, a post-Covid backlog, and a solid growth opportunity ahead.
Air Partner (LON:AIR) - record year of trading and the momentum continues into the new year.
ULS (LON:ULS)
Share price: 96p (pre-open)
Share count: 64,871,276
Market cap: £62.28m
Our coverage on ULS has been light so far so thanks to Simon for flagging it.
Uls Technology (LON:ULS) was admitted to AIM in July 2014. It’s actually figured quite well in terms of Ranks across that timeframe, although the share price has been volatile.
The group’s business was founded in 2003 and provides online services for consumers and intermediaries in the property, legal and financial services industries.
The central service is eConveyancer, a fully automated online comparison platform which enables customers to obtain residential conveyancing quotations from our solicitor partners, then instruct their selected solicitor.
The group says that 2% of all UK conveyancing (the legal transfer of property) goes through eConveyancer, either through its own brand or as a white label solution.
Other services include:
- estateagent4me – find an estate agent to value and/or sell a property.
- Property Searches – one stop shop for conveyancing firms and solicitors for all searches.
- Energy Performance Certificates – select an assessor to obtain a residential or commercial property energy performance certificate.
- ID Checks – online electronic identity checks, including those required to comply with anti-money laundering regulations.
Top line growth has stalled in recent years. This flatlining revenue coincides with the share price crash in the chart above. Beyond today’s look at current trading, going back to the FY18 and FY19 accounts is warranted, in order to get a deeper understanding of what went wrong here.
But the longer term trend is encouraging.
And a lack of meaningful dilution means most of this growth is flowing through to diluted earnings per share. The compound annual growth rates (CAGRs) are good here too, mid-20s for profits, earnings per share, and free cash flow.
Meanwhile, the group actually stacks up quite well in terms of valuation compared to the rest of its Software industry group.
So there are quite a few positives here at first glance.
The Board expects financial results for the Period will exceed management's expectations.
Highlights:
- H2 revenue +68% on H1, from £6.3m to £10.6m,
- FY revenue -18.4% to £16.9m,
- Disposal of Conveyancing Alliance Limited ("CAL") in November 2020 for £27.3m, taking cash balance to c£24m with no debt,
- Due to poor H1 (Covid-disrupted) and ‘significant investment’ in DigitalMove, ULS expects a pre-tax loss of c.£0.8m (2020: underlying pre-tax profit of £2.4m).
We’re getting a few ‘ahead of expectations’ updates these days and ULS can add its name to the list.
The group’s H2 was strong as the housing market materially improved and there was a significant recovery in volumes from its broker channel. This channel was up 21% in terms of active users at the end of FY20, although the recovery in the group’s lender channel has been slower.
ULS has undergone a strategic reorganisation with Jesper With-Fogstrup joining as CEO in January 2021 and a number of other new senior hires. Alongside this is the decision to accelerate the digital customer experience of DigitalMove, on which the company is spending ‘significantly’ more opex.
As for current trading and outlook, the flagship eConveyancer product had a particularly strong second half last year and current trading is buoyant. ULS sees further potential here and is ‘securing new routes to market’.
Conclusion
Directors have been buying and there are some solid institutional names on the share register.
It looks like ULS might have actually played quite an important role through the lockdowns: over 40,000 instructions went through DigitalMove in FY20, facilitating the legal process of buying and selling homes.
And the trajectory is encouraging too, with a strong sequential improvement in key performance metrics in the second half. Conveyancing completions in H2 were 18,667 compared to 15,100 in H1.
ULS notes that there has been a shift in market dynamics. Home movers are driving the main market more than the first-time buyer at the moment.
That makes sense. Lockdown has made people re-evaluate where they live and work and has helped stimulate the housing market. Importantly for ULS, it is also helping to accelerate digital adoption. This puts it in a potentially promising spot.
Following the CAL sale, ULS has significant cash funds. It intends to ‘rapidly build solutions for the housing market and legal conveyancing community, improving the home moving experience, unlocking efficiencies and revenue earning opportunities across the process.’
This looks potentially quite promising and is worth further investigation in my opinion. The property market has proven far more robust than many considered possible in early 2020 and the trajectory looks positive from here.
ULS, with its potential for digital disruption, could be poised to benefit. The valuation is undemanding for a tech stock given the £24m net cash position resulting from its disposal of CAL.
Angling Direct (LON:ANG)
Share price: 85.08p (+0.09%)
Share count: 77,267,304
Market cap: £65.7m
We always talk about ecommerce here and Angling Direct (LON:ANG) is as good a play as any, forging ahead in the niche market of fishing. The fact that it gets discussed less than the likes of Gear4music Holdings (LON:G4M) might even be to its advantage.
One interesting point here is that Angling considers itself much more than a simple retailer of goods. It is an important pillar of the fishing community with ‘passionate colleagues, store-based qualified coaches, social media reach and ADTV YouTube channel’.
It’s summed up neatly by a quote referenced by the group’s chairman:
There are two distinct visits to tackle shops, the visit to buy tackle and the visit which may be described as Platonic when, being for some reason unable to fish, we look for an excuse to go in, and waste the tackle dealer's time - Arthur Ransome
And the chairman adds:
Our customers love being in our stores, on our website and social media outlets socialising, learning and receiving top-quality fishing advice and assistance. We equally relish both the visits to buy and the platonic, to use Arthur Ransome's words.
There’s something potentially quite valuable there.
But, like the G4M of old, Angling Direct has so far struggled to translate strong revenue growth (5Y CAGR: 36.7%) into sustained profits.
This kind of operating model isn’t easy. You need extremely efficient distribution, logistics, and inventory management solutions. But once you’ve built them and established a strong market position, the scalable economics can be extremely attractive.
At some point, Angling Direct could well reach that inflection point.
And maybe Covid has been good for fishing? Surely if there’s one outdoor activity suited to social distancing, it’s this… It has certainly accelerated the trend towards online sales, and even attracted new anglers to the sport for the first real increase in licence for several years.
Highlights:
- Revenue +27.1% to £67.6m (online sales +39.9% to £35.3m, of which 12.4% was international),
- Retail store sales +15.5% to £32.3m despite lockdowns,
- Gross profit +39.5% to £23.1m; 300bps improvement in gross margin to 34.2%,
- Operating cash flow +825% to £6.9m,
- Profit before tax +279% to £2.6m,
- Basic earnings per share of 3.33p,
- Net cash of £15m.
The gross margin improvement is particularly promising, especially since this has resulted in the swing to positive PBT. Angling says this 300bps GM improvement is due to a ‘more disciplined approach to pricing and inventory management’.
This is what’s needed in order to ensure that all of Angling’s hard work in terms of operations can translate into profit for shareholders. If the group has figured that out then it could grow strongly in the years ahead.
The group has spent time and money this year improving its customer journey functionality across UK and international websites (.uk, .de, .fr, .nl) and has ‘reconfigured’ its distribution centre.
Four new stores have been opened in high density fishing catchments (Warrington, Bristol, Northampton, and Leicester), bringing the total estate size to 38 sites at the end of the period. There have been two additional openings since, in Redditch (February) and Sittingbourne (April).
And another promising sign: Angling’s own higher margin Advanta range is making an increasing contribution and is now up to 4.8% of total sales (FY20: 2.8%). This range was only launched in 2016, so it’s good to see it gaining traction.
Key hires have also been made across the ‘critical areas’ of Web development, Technology, Buying, Finance and Operations.
Current trading and outlook:
- Strong Q1 FY22 sales, up 54% on the prior year, reflecting closure periods in both years. Online sales up 42%, store sales up 75%,
- Focused internationally on five key growth territories; Germany, France, Netherlands, Belgium and Austria
- well-placed to deliver profitable growth in revenues, albeit at a lower rate than the prior year as trading conditions and sales mix begin to normalise
- Financial guidance reinstated, on track to meet current year market expectations
Conclusion
These look like great results to me and the real question is whether or not Angling Direct is on the cusp of profitably scaling its online and international operations.
It’s in a niche sector, with a strong market position, and it looks to have created a resilient business model with its hybrid online/retail operations.
I am reminded of G4M here both in terms of the group’s previous profitability struggles and its consequent ‘laser-focus on pricing and inventory management’.
The group has a chance of fulfilling its ambition ‘of becoming Europe's first choice omni-channel fishing tackle destination for all anglers’. And what’s more, Angling appears to be motivated by something larger than just making money for shareholders.
One thing to note is the consistent director selling - this can be done for a number of reasons. Directors need liquidity too, and they sometimes just want to enjoy a share of the wealth they have helped to create.
But if they know there’s a good opportunity here, they wouldn’t want to be selling down too much would they?
That aside, Angling is clearly passionate about fishing and it has strengthened its balance sheet, inventory management, and pricing discipline. It could be building something quite valuable.
Medica (LON:MGP)
Share price: 159.16p (-2.06%)
Shares in issue: 122,390,760
Market cap: £194.8m
If you’ve run any screens recently on longer term quality metrics, you might have encountered Medica (LON:MGP) . Its profitability metrics are reassuringly double-digit.
This is a leading provider of teleradiology services - as such though, demand for its services has fallen amid the general preoccupation with Covid.
The one-year share price has been volatile as a result but it has rebounded back to previous levels and the StockRank is also on an improving trend.
The Company currently offers two primary services to hospital radiology departments:
- NightHawk - urgent reporting service
- Elective - includes routine cross-sectional reporting on MRI and CT scans, and routine plain film reporting on x-ray images.
The former has proven more resilient than the latter, which has been heavily disrupted over the past year.
Through its US subsidiary, RadMD, Medica also provides pharmaceutical and biotech clients and contract research organisations (CROs) with high quality, complex imaging services for international clinical trials.
Highlights:
- Revenue -20.9% to £36.8m,
- Gross profit -21.6% to £17.5m; gross margin -40bps to 47.4%,
- Underlying operating profit -55.7% to £5m,
- Underlying earnings per share -57.3% to 3.47p.
NightHawk revenue grew 4% to £23m, making a quick recovery from the impact of Covid.
Elective revenue fell 49% to £12m as the NHS re-prioritised away from elective procedures.
GDI contributed £1.3m of revenue following its acquisition on 3 November 2020. This acquisition has pushed Medica from net cash of £4.6m in FY19 to net debt of £3.9m at 31 December 2020.
GDI is a leading teleradiology and managed services provider based in the Republic of Ireland that also manages 50% of Ireland's screening and surveillance programme for diabetic retinopathy.
There have been a couple of post-period deals too: RadMD (Completed the earnings-accretive acquisition of RadMD, an imaging Contract Research Organisation (iCRO) business based in the US, enabling entry into the USD 1 billion global market) and Integral Diagnostics.
Conclusion
With its revenues from elective surgeries and the like, Medica was always going to see its results hit by Covid.
Elective surgeries will return, and what’s more, there will be a backlog of activity. Medica is already seeing month-on-month improvements here. While it continues to be a drag on results for now, this could transform into a tailwind later on in the year (but there’s also the risk that things could take longer than expected to fully recover).
Nighthawk has been resilient but the group does note the issue of pricing pressure on gross margin here.
The group undertook an equity placing and subscription which together raised £16.1m in March 2021. Institutions and company management took part. Medica also completed a refinancing of its debt in early May 2021 on favourable terms. So the group has shored up its finances.
Beyond that, it is still spending money on growth initiatives both organic and acquisitive.
There’s a clear focus for the year ahead: i) ensuring that the UK business is well prepared to support recovery in Elective activity, ii) accelerating growth and market share gains in NightHawk and iii) internationalise its new areas of business.
Ultimately, although these results might not thrill the market, neither do they dent the medium term investment case in my opinion.
Air Partner (LON:AIR)
Share price: 85.97p (+10.22%)
Shares in issue: 63,562,601
Market cap: £54.6m
It’s quite the comeback for Air Partner (LON:AIR) - even today’s drab market can’t hold the shares back and they are now up more than 10% at the time of writing.
The company has guided towards good trading so well done to anyone who did buy in recently.
The group released a (very) brief update back in January:
At the time of the half year results, published on 30 September 2020, the Board reported that it expected modest profits in the second half of the year. However, despite global travel restrictions, the Group has performed better than expected and ahead of market expectations.
Today we have the full year results.
Record year, driven by exceptional levels of trading in the Charter division; Current year Q1 performance ahead of management's expectations
There have been some intriguing updates today - notably ULS and Angling Direct - but this one just about shades them.
Highlights:
- Revenue +6.7% to £71.2m,
- Gross profit +31.3% to £44.9m,
- Underlying profit before tax (PBT) +176.2% to £11.6m,
- Statutory PBT +833.3% to £8.4m,
- Underlying continuing basic EPS +121.9% to 14.2p,
- Total dividend +33.3% to 2.4p.
The shares have rerated over the past few weeks (and today) but 14.2p of underlying EPS puts the shares on a PE ratio of just 6x. Whether or not this level of trade is sustainable is another question, and trading has been volatile in the past.
Still, it’s a single digit historic PE ratio and a Value Rank of 87 (this could increase in the coming days), so if you think Air Partner’s momentum will continue, there’s probably still time to consider it.
Air Partner’s Charter and Safety & Security capabilities have allowed it to provide highly tailored solutions over lockdowns. Following its placing, it has also paid down debt from the Redline acquisition (see new business wins here) and is investing in organic growth opportunities.
Group Charter has fared particularly well due to evacuation activity and sports and government business. I would assume this activity will subside to some degree.
Freight has been strong thanks to PPE flying and automotive supply chain disruption. Again, what happens after this fades?
US Private Jets performed well ‘as HNWIs (high net worth individuals) travelled for leisure’. Meanwhile UK and Europe Private Jets had a more difficult time due to ongoing travel restrictions.
The number of new JetCards sold is up 9.4%.
It has not all been good across all divisions, but it’s safe to say the good far outweighs the bad here.
And the momentum continues. Air Partner notes a ‘strong start to the current year with Q1 performance ahead of management's expectations’ and with trading levels for Q2 also expected to be ahead of management's original forecast, subject to government restrictions being lifted.
Conclusion
This has been a record year for Air Partner, which has seen it partner up with governments and global corporations to play a vital role in evacuations, repatriations and the provision of PPE in the face of the global pandemic. Hats off to the team.
The good news continues, with the new year again ahead of expectations. Organic investments in the US should drive growth in an important market, and Redline is winning new business.
Freight activities continue to support the fight against COVID-19, delivering test kits and vaccine raw materials, the US Charter business continues to trade strongly, JetCard sales and deposits are up in the UK and US, and there are signs of recovery in the Safety & Security division.
So on the whole, this looks really good. The trick will be in figuring out how much is a passing Covid boost and what true, sustainable, underlying growth might look like.
Trading has been choppy in the past, and brokers are forecasting a very different FY22e. But then again, management commentary on current trading paves the way for future upgrades.
Disclaimer
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60 comments
Air Partner (LON:AIR) (I hold)
Beyond my usual analysis of this company I found the geographic splits quite insightful today:
As covid-related activity shifts away, I am hoping that "normal" charter activities come in to fill the gap. Also, there's that US growth to keep an eye on too.
There's lots of hoping going on over here.
Personally I was a little cautious after going through these results, but having seen the significant +£2.1m cash generation in Q1 (mentioned in the IMC presentation slides*) I am hoping there will be some positive surprises over the next few months.
Fingers crossed.
A
*Net cash at the end of Q1 (i.e. April 30th 2021) is £12.0m, up from £9.9m at Year End
https://www.investormeetcompan...
Ref ULS Technology (LON:ULS)
Many of the "Director Purchases" in ULS are actually by Kestrel Partners, which is an investment fund. Stockopedia show them as purchases by Mr O.R.A. Scott, when they are mostly purchases by Kestrel who have put Mr Scott on the board.
A competing site shows duplicate entries for each trade, so their algorithms also don't get it quite right.
I see that Sdi (LON:SDI) was tagged in yesterday's SCVR but I could not see anything. Was there an update or discussion?
re: SDI (LON:SDI) yesterday
It was mentioned in passing in the report - if you do a ctrl-f search you will find it
We're transforming our business model to adjust to a new way of living and working Pret a Manger setting up in Tesco stores.
Here are my SCVR heat maps for today (prices as at ~9am).
I share these heatmaps with the intention of giving a visual indication of what is going on in the SCVR world: who’s reporting (and it's impact on the share price); and what’s moving more than 'normal'. There are no associated recommendations, implied or otherwise, just information. How, or indeed if, you choose to use that information is up to you. Please do feel free to ignore them if you don't find them useful!
Please read my heat map thread for a great deal of explanation of how the heat maps are formed and how I use them to guide me with my research, and for a full key to the contents.
I very much welcome feedback so if you do have any feedback, not already covered in the heat map thread, it would be very helpful if you could post your comment in the heatmap thread rather than the SCVR thread. The more specific and constructive the feed back is, the more that likely it is that I will be able to act upon it. Thank you all for the feedback so far.
Small / Micro Caps reporting today:
Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):
Warm regards, stay safe, and best of luck!
greensiax
Has anyone got any interesting insight into Kromek (LON:KMK) I've just started researching them as it seems they have some interesting products, and seem to be getting good government contracts (US/EU). They have just had a very oversubscribed fundraising recently too. Medical and security scanning/sensor products with crossover ie airports using their security scanners and possibly in the future their bio-scanners too (covid +), with a foot in the door with one product it should be easier to bring in another? And of course their radiation scanners, possibly a growing market if we are to meet climate change targets? Or are the stock ranks correct in detecting a sucker stock?
Walk away. In fact, run.
Re Kromek (LON:KMK)
I first came across this company several years ago at an Equity Development investor seminar when its enormously charismatic CEO gave what remains to this day one of the best company presentations that I have ever seen. I was so frustrated that I didn't have any funds to invest at the time.
I have followed the company ever since. The CEO remains brilliant and charismatic, the products are superb, and it regularly releases optimistic and upbeat RNSs. Trouble is, it never seems to deliver any shareholder value. I really hope it comes good, but I can't help but feel that it will forever be a 'jam tomorrow' stock.
I hold LON:KMK - have for a while and am not in the black by any means. Interesting what you say about a very charismatic CEO. This can be a double edged sword as in my experience it can lead to toxic semi-cult that trucks no views but their own. Maybe we should have a rating on Stocko.
Anyone have any insider views?
Kromek (LON:KMK) - Simon Thompson liked it. Zapping people for covid as they walk through airport terminals (like The Arnold in Total Recall) and other uses but a bit blue sky and govt prefer bits of faked paper etc.
Kromek (LON:KMK) the ultimate ‘jam tomorrow’ stock. They tell a great story (perhaps they could monetise that) but management fail to deliver year on year. I sold half my holding on reading the update today. The rest to follow on any glimpse over 17p.
I love the idea of St Ledger, presumably the patron saint of Book-keeping.
ULS Technology (LON:ULS) it appears this update leaked out yesterday, shares were 8% yesterday and down 1% today.
Very encouraging update from Revolution Bars (LON:RBG) today.
“Bars have traded EXTREMELY STRONGLY (my capitals) despite unseasonable cold”.
Only 15% of capacity is open, yet that has delivered 48% of the sales in the 4 weeks to May 9th that they got when everything was open pre covid in those same 4 weeks in May 2019. WOW!
Strong trading anticipated and above expectations update along with fewer competitors.
I’ve held before, during and then since the covid lows, based mainly on the excellent previous Paul Scott analysis here.
Since nobody else has, I’ll reply to my earlier post on Revolution Bars (LON:RBG).
It’s surprising there has been no comment on what seems a very encouraging update today, bearing in mind the excellent coverage here from Paul and usually a lot of follow up to his comments.
Maybe most think, as seems the case with some hospitality and travel sector shares (e.g Greggs at all time high and OTB not that far off) that the good news is already priced in? But is it? The RBG share price is up 14% today o a big down day generally
I hope Paul will have time to comment if/when has the time to in case he too now thinks the share is fully valued. What really appeals is what seems a popular and improved offering along with fewer competitors with a clientele (as the RBG update confirms) itching to take advantage. So the next update could well be another good one.
Hi Ken,
I hold Revolution Bars (LON:RBG) and very happy with todays announcements. This is the fifth time I have held these shares and each time I have walked away with a profit of between 8 and 98% so no complaints from me, but as you can tell, they are not going anywhere near my coffee can.
42p would give me a 100% profit, but I am struggling to work out what would be a fair price today for them. I got involved in them a couple of years ago and the maximum price I have seen is around 80p, but there are more shares in circulation now, but I cannot work out how many shares were in circulation before otherwise I could probably work out what that 80p would equate to now per share. I believe Paul explained this information is available via Stocko, but cannot remember how to do it.
They have previously been around 200p but yet again a different share count. If we imagine there had been no dilution in the number of shares, then I can see no reason why they could not return to the 200p range, as the management is obviously top notch, they have survived covid, are a leaner organisation, and probably the opposition is now not so strong.
Do you have a target price, or does anyone know how to work out the shares in circulation at a particular time.
Bob.
ps. Thanks to Paul for sharing this gem with us, its been a ride, not always fun, but always come good.
GloucesterBob.
Paul explained about the increase in shares in issue (from 50m pre covid to around 125m now)) in his excellent SCVR analysis on April 13th which was the day RBG issued their results. Just get up the SCVR for the 13th April to find it.
As you say there’s no likelihood of the share returning to anywhere near £2 again (at least not until the distant future or if investors take leave of their senses) for a very long time, if ever,now that there are so many extra shares. Paul reckoned a placing around 50p makes sense and maybe that’s also a reasonable fairly short term target price too, though guessing prices is a bit of a mugs game.
Unless Paul or anyone contradicts this, as I see it 15% capacity and 48% of the figures for the same 4 weeks in 2019 hints that 30% capacity would just about match them. So, back to normal trading quite soon could well see another “better than expected” update ahead to give the share price another decent lift. The share doing so well today on a big down day reassures too.
Revolution Bars (LON:RBG) (I hold)
TABLE AVAILABILITY
"Unless Paul or anyone contradicts this, as I see it 15% capacity and 48% of the figures for the same 4 weeks in 2019 hints that 30% capacity would just about match them. So, back to normal trading quite soon could well see another “better than expected” update ahead to give the share price another decent lift."
When I first read this I was quite wary about 30% capacity equating to normal 2019 trading.
After all, the 15% capacity/48% sales vs 2019 took place during an exceptional period, probably more exceptional than the weeks that will proceed May 17th.
However, I've since looked at 1 other online bar booking system and there's pretty much no outdoor availability for the next 2 weekends and a lot of bookings 3 weekends from now (with several bookings during the week too).
I've checked quite a number of Rev Bar venues too and most look fully booked for at least several weekends. I'm sure any gaps will quickly fill up.
It's quite impressive that things are getting booked weeks in advance.
Of course the Euros start soon, and if memory serves me correctly, Revolution Bars (LON:RBG) isn't generally set up for live sports, so it will be interesting to see what happens then.
BOOKING SYSTEM
A terrible booking system.
I can't even make a reservation through the dedicated app.
DEBT
Net debt was indicated to be £29.4m on April 12th, when 20 bars opened up.
Net debt as of May 10th was £28.5m.
So they've made c£1m in 4 weeks of trading with only 15% capacity and presumably having spent a lot stocking up on booze for the coming weeks?
I imagine a chunk of this is deposits, but that still seems quite impressive.
VALUATION
With current debt levels the EV is c£70m.
I am personally applying a x10 cash generation multiple to this business.
If underlying annual cash generation can hit £7m (much lower than pre-covid and it should in theory be a stronger business now), then I would say the company is quite fairly valued at the moment (£7m * 10 = £70m).
There's upside of 47% and 76% respectively if underlying annual cash generation can grow to £10m or £12m respectively.
That equates to a share price target of 54p and 64p respectively vs today's 37.50p.
In summary, therefore I think the current share price - 37.5p - should be the lowest it should be, with quite a lot of room for an upward re-rating over the next 18-24 months.
Well I hope so anyway.
A
Rbg
Of course the Euros start soon, and if memory serves me correctly, Revolution Bars (LON:RBG) isn't generally set up for live sports, so it will be interesting to see what happens then.
All the more excuse for non footy fans to be in revolution bars sipping cocktails if the footy is hogging the tv. No doubt I will be crying in my beer come the end of the group stages - although based on past unluckyness in major tournaments I must say Scotland should win the tournament at a canter if the luck evens out - there is history here in that Greece lucked there way to the title in 2004 - and its an interesting fact that when it comes to the all important penalty shootouts Scotland have a 100% success rate.
RE: Revolution Bars (LON:RBG)
I got involved in them a couple of years ago and the maximum price I have seen is around 80p, but there are more shares in circulation now, but I cannot work out how many shares were in circulation before otherwise I could probably work out what that 80p would equate to now per share. I believe Paul explained this information is available via Stocko, but cannot remember how to do it.
It's in the Stockreport, the next to bottom line "Average Shares". Shares in issue have gone from 57 million a few years ago to 85 million now - so a 49% increase in the shares in issue. Say 1.5 times for simplicity's sake. 50p would roughly get back to the pre-pandemic level.
But really that's not the way to look at it. Leases ought to be cheaper, although staff will be more expensive. There'll be less competition, but that will come back quite rapidly if we have a boom - which you'd think is quite likely this summer. But in any case this is a different company, with less bars but hopefully of higher quality.
However, the previous £2 high is artifical. That was on the back of the Stonegate bid that shareholders rather optimistically, perhaps foolishly, rejected. If they achieved even half of that I'd be deliriously happy. It's certainly not hard to see this north of 50p in a few months, assuming no setbacks with the route out of restrictions.
timarr
number of shares :
Thanks for that, so if I have understood it correctly, (believe shares today is 125 not 85) taking the number of shares in a given year, multiplied what appears to be the top price you get
Year Shares Price Mcap
2018 57m 148 84m
2019 57m 103 59m
2020 50m 77 39m
2021 125m 36.5 45m
Ignoring 2020, It appears the market cap should be between 59m and 84m. With todays number of shares, that equates to a price between 47 and 68p.
North of 50p indeed looks doable.
Rbg
Ignoring 2020, It appears the market cap should be between 59m and 84m. With todays number of shares, that equates to a price between 47 and 68p.
What about the net debt though ignoring leases - this is way higher than I can remember at any time in the recent past I think they were down to 5 mill at start of 2018 and 8.4 million at December 2019.
Per the recent April update they had the following to say - ref net debt - this company is significantly more indebted now than at any time I can remember. So from an enterprise value I don’t think the company is any cheaper now than 2018 or 2019.
By the end of FY20, due to COVID,net bank debt had risen to £22.0 million, and as at the half-year of FY21 was£21.0 million. Upon reopening, the Group will be focused on debt reduction.
As at 13 April 2021 net bank debt was £30.8 million, and total agreedfacilities were £40.3 million.
Obviously there is the bonus if they have a leaner business model going forward they may fare better than pre covid.
If you are a buy and hold type of investor Revolution Bars (LON:RBG) has actually been a disaster. I sold out on the big dip in 2017 and pleased that I did as it’s still 73% down from there according to Stocko.
It would also have been very difficult to trade in and out of successfully over the last three years if you look at the chart as it’s been mostly a downward slide.
If you’re already in it, then I can understand the view that the future is much rosier than the recent past. A mini boom associated with the end of lockdown is almost guaranteed and they have got rid of the most unprofitable sites/leases.
The notion that there is far less competition seems theoretical to me. Does anyone have a long list of cocktail bars that have gone out of business? The class act in this space is Be At One group, part of Stonegate, and they are still very much around. So, whether there is a significant reduction in competition is arguable. There’s also no reason that new cocktail bars couldn’t open as competitors now that the uncertainty is mostly over as there are few barriers to entry.
The other imponderables are how long the mini boom will last and how much wage inflation will they experience, given that many of the young migrant workers that worked in hospitality went back home during the pandemic?
So, yeah, no coffee can for this one, but if you are already in it, I can see why it’s a hold rather than a sell.
No position.
Air Partner (LON:AIR) seems to have reported a record year despite COVID complexities. Interesting to see if this is a one-off given the COVID situation or if this can lead to further growth going forward.
Jack,
St. Leger's day is mid September which is too early to return according to those studies. It needs to be "Sell in May and go away, come back after Halloween".
Of course that's based on average returns and we here aren't getting average returns, are we?
I think market timing is a high risk strategy. If you have a portfolio of well selected successful companies your best investments may move strongly ahead while you are out. I had that happen with Future which cost me very dearly as I felt it had got too far ahead to go back in at a much higher price. For me if you are happy with your holdings then stick with them - with small caps in particular the risk of being out is greater than being in (assuming you have a well chosen diversified portfolio)
Fully agree with that.
I know a lot of people hedge or do other things but for me just buying good companies that are profitable and able to grow and let them get on with it.
The horse race, the Saint Leger, is run in mid-September. But the feast day of Saint Leger (or St Leodegar), the martyr, is celebrated on October 2nd.
The stock market saying refers to the horse race. In the good old days of the pre-big bang City, stock brokers would up sticks at the start of May and either head off to the Mediterranean or enjoy the sporting and cultural delights of the English summer, the last of which was the St Leger race.
Following up on the Greggs (LON:GRG) discussion yesterday I see today that Pret are sharing their weekly sales data with Bloomberg who are reporting their sales recovery by region.
In transport, London Stations are at 57% of pre Covid and regional stations at 40%.
The Pret Index: Pret Sandwich Sales Show Where U.K. Workers Are Returning to the Office (bloomberg.com)
Angle (LON:AGL) I hold
Another RCS this morning. Researchers in Milan have used Parsortix to capture CTC data for use in diagnosis of particularly aggressive type of breast cancer which cannot be captured by other systems.
Also, Trinity Delta have issued a report which gives a valuation of 255p per share.
hTTps://www.trinitydelta.org/wp-content/uploads/2021/05/AGL-Initiation-210511.pdf
Results out for Medica (LON:MGP). This is more about the outlook than historic figures since on the elective side of their activity "there are now a total of 4.7 million people waiting for hospital treatment. That number is set to rise to what the NHS Confederation believes could be as many as 6.9m cases by the end of the year as people finally visit a GP".
There are also several new areas of business through acquisitions/joint venture that will need management time to bed in properly.
I'm disappointed that Medica (LON:MGP) gave such a vague outlook statement and refused to resume FY guidance. Normally, this is usually a sign of a company seeing a profit warning ahead, not wanting to say it. However, the other signs of future profit warnings - like hints on cost pressures, revenue pressures, H2 weighting, etc - all not there. So I conclude this is just genuinely management being lazy and/or cautious to not give a more concrete outlook.
Liberum has issued a broker comment this morning. Their expectations for FY21 EPS remains unchanged, at 6.9p. This gives a PE ratio of 22.3x, which is very low IMO, considering that FY21 is still COVID impacted for 5-6 months and therefore FY22 is inevitably going to see further strong EPS growth.
Reading tea leaves, the company increased the final dividend above broker forecast, paying out total FY20 dividends of 2.55p vs 2.2p broker forecast. If management thought FY21 would be gloomy, they wouldn't have proactively beat the dividend forecast.
The key risks remain for me as follows:
I hold - and having held since 115p and sitting on a good gain, I am holding on for now as I think there is potential of 200p+ over the next 6 months, once management confirm improving elective trading and confirm FY EPS guidance circa 6.9p.
Also, Medica (LON:MGP) is one of the few shares that have growth potential (management stated ambition of doubling revenues in 5 years) and also defensive (if economy tanks, elective and urgent surgeries still need doing, so scans still need reading).
The Medica (LON:MGP) outlook largely depends on the NHS recovery and to that extent isn't in their hands. All I have heard from the government is that things will get worse before they get better and will need a lot more funding. So it's good that MGP are looking at other iniatives.
I think the NHS could be another area like hospitality that was very dependant pre-Covid on immigrant workers where labour supply will be a constraint on recovery. I think doctors and nurses will be more settled and less likely to have left the UK than cooks or waiters but I know personally of some who have left and few will be coming here to replace them. To the extent that Medica can outsource their work overseas that could be a benefit but the actual treatments require medics to be available here.
I agree that work volume flow to Medica will depend on NHS volumes of elective surgeries. Which is outside the control of Medica (LON:MGP)
Eg if NHS decides to halve their elective surgeries run rate that would halve Medica's UK elective surgery business.
But with the potential PR disaster of people waiting years for surgeries, I can't see how the government doesn't cave in and boost funding, and therefore elective surgery volumes, over the next 12-24 months.
Treatt (LON:TET) Half year results out today, I have held nearly 20 years and gradually become more positive over the future of this business. Stunning increase in margin and they look to be managing the large cap ex prudently, whilst also coping with covid issues in the beverage trade in particular. Hgh rating justified in my view by performance to date and prospects ,but your view welcomed.
I had held Treatt for 10 years and always viewed it as a well run company. They appear to have managed the pandemic very well and the outlook is upbeat. Will not be selling any time soon.
There’s some interesting discussion and analysis on the topic of “Sell in May ... etc.” in this recent Ed Shing article and the follow up comments below.
https://www.stockopedia.com/co....
Gist of it is that for the U.K. there is some supporting historic evidence to the phenomenon (better returns in winter months than for the summer) but that the frictional costs of crossed spreads, trading fees, lost dividends and, for the moment at least little alternative positive return in asset classes such as fixed income, appear to make the benefit of selling to sit on the sidelines more marginal.
Gus.
This Sell in May thing has anyone ever done a detailed analysis taking account of the loss of dividends and transaction costs?
Not to mention the timing of when you buy back in could negate any difference as well!
I always though selling in May and going away was to provide funds from profits for a rewarding holiday. Maybe I'm a touch old-fashioned.
And for some nice visits to the races to 'invest' some of your cash from selling - especially the St Ledger. ;-)
Jack, if you have the time can you cast your eye over Zytronic (LON:ZYT) as they have put out interims. They are hinting at some improvement in orders post lockdown, and still have plenty of cash despite an earlier distribution.
I hold a very small amount in my SIPP and expect to see some improvement in share price over the next 36 months.
Greyster
Greyster - Zytronic (LON:ZYT) (I hold) here are some of the notes I've made on this mornings interims.
ZYT Shareprice 170p give or take. Market cap needs to be adjusted for the recent tender offer (return of cash)
Shares in Issue 11.42m (down 28.8% thanks to tender offer) making the market cap around £19.4m.
Despite the tender offer and reduced sales the cash pile is relentless building again, now stands at 7.8m making the making the business a lot cheaper - 11.6m EV. For a business that averaged net earnings of 3.7m over the 5 pre-covid years. Puts it on 5.3x for 'normal' earnings and sales or 3.2x enterprise value.
So how is the company doing in returning to normal?
I do like a simple set of figures and a lack of meaningless director speak. If you have nothing to say. Say very little. Does this one contend for the award of most brief and non-committal set of Covid results? It should do.
The business. Makes robust multi-touch, multi-user capacitative touch screens, controllers and software for the financial, gaming, advertising, self-service (unattended retail) markets. A niche market in which it excels. The touch market is huge, but the market for robust screens in busy venues and outdoors - thats ones that don't crack when the coffee mug lands on them - is currently small, relatively speaking. They specialise in huge 80inch plus touchscreens covering one or multiple displays and allowing several people to interact at once. There are both threats and opportunities in this market and the screens are evolving. The company is continuously developing products to meet the market needs.
It also owns its own facilities - so no lease complications. Balance sheet is stuffed with property as well as cash. Lovely. It results in the depreciation and amortisation charges of 0.5m which convert the operating profit of 0.2m into the net loss of -0.3m
Sales improved 20% over H2 FY20 to 4.8m and 0.4m cash flowed through to the pile.
The improvement in sales is better than signalled at the last results - basically there was no signal with talk of flat sales maybe an increase in orders - and better than my own pencilled in 10% - which is a positive sign?
Though the management remains entirely tight lipped and gives very little away, except the mention of their largest markets - financial and gaming - being largely responsible for the increase. Which is as good as saying the recovery is underway but don't quote us on that?
Costs have been cut during the pandemic. Gross margin was 27% even at 4.8m turnover, and should now start to climb with recovering sales. I forecast 33-35% gross margin at 'normalised' sales of 19-20m annually - though this is very dependant upon the mix of size of screens and size of order, the larger screens are higher margin (provided that the production yield is maintained). And should I believe be the future direction for the company.
My back of the envelope calculations are for continuing 15-20% sales uplift in H2 - which I hope to be conservative - and a slight net profit, leaving a loss around -1.0p for the year. Reversing out D&A makes that actually operating earnings of 6p and the cashpile increasing by a further 0.6m in H2 to 8.4m.
My scribbled calculations forecast a relatively slow return to 'normal' with FY (sep) 22 sales of 15m and FY 23 of a 'normal' 18-19m. No assumptions for growth over return to normal. And these H1 have recovered faster than my scribbles can keep up.
Pencilled in FY22 as 7.7p eps and FY23 as 17.8p eps with adjusted eps (reversing out D&A) of 19p and 32p respectively thanks to the reduction in shares and cost base - and cashflow to match. allowing further buybacks or dividends.
The share has the potential to double relatively quickly. Faster recovery in sales and signs of growth beyond 'return to normal' looks like a multi-bagger with the property and cash stuffed balance sheet and underlying cashflow limiting the downside? Though it looks a lot better having bought around a pound than buying now - it's my 10th largest holding currently - Wish I'd bought a few more. toujours la meme?
cheers
Mark
Mark
Thank you very much for your analysis on Zytronic (LON:ZYT) which I found immensely helpful.
As part of my own process I used the stock valuation tool and assuming a current free cashflow of 400k, but growth in this of 100% for three years (taking back to only £3.2mn) and then a couple of years at 20% growth before a more pedestrian 4%. Using a 10% discount rate, this gave me a doubling of the current share price.
As you point out the profits were circa 3.7mn post COVID. The free cashflow I used was only the 6 months number as it is difficult to predict capex. However, I believe my assumptions are conservative.
I do feel this is ripe for a re-rating at the first sign that sales volumes and growth are being delivered.
Good luck with your holding. I am tempted to top up if any significant weakness over the summer months.
Greyster
City Pub (LON:CPC) Y/E Dec '20 Results out today. Looks like the group has used lock down well to cut costs, streamline bookings and centralise other functions and has spent on refurbishing some of their upmarket 'boutique' Hotel/Pubs (My company involved in one of them - Hoste Arms in North Norfolk).
Plenty of Freehold value in balance sheet and with plenty of 'staycation' business to be had this summer should do very well.
Are you able to run the rule over them please Paul?
And TU from Paul's long-term fave Revolution Bars (LON:RBG) . Bottom line - students have been very thirsty (and very brave in cold temps, bless).
We might have to upgrade them from Snowflakes to Hailstones!
Air Partner (LON:AIR) final results today look very positive to me. Revenue and profits up. Net debt now net cash.
Air Partner now trading above management expectations for Q1. Another vote for you guys to cast your eye on it if you have time. An airline with increased profits?!? I hold.
what are 'management expectations'? Means nothing if we don't know what they are
Thoughts on the director sales of Keystone Law (LON:KEYS) would be gratefully received.
Air Partner #AIR full-year results interview by Mark Briffa, CEO. They've achieved record results with underlying PTP +176% driven by strong trading and cost savings. Strong start to the current year with Q1 performance ahead of management's expectations, Q2 ahead, subject to government restrictions being lifted. Video & podcast.
Separately, do join the Stockopedia/piworld StockSlam hosted by Damian Cannon, next Wednesday 19th May, 6-7.15pm. The Slammers have 3 minutes to pitch a stock followed by 3 minutes of questions from the audience. Fast, fun and informative. Register here.
My morning smallcap tweet:
Joules (LON:JOUL) U and I (LON:UAI) Infrastrata (LON:INFA) Invinity Energy Systems (LON:IES) ULS Technology (LON:ULS) Revolution Bars (LON:RBG), Kromek (LON:KMK), Vector Capital (LON:VCAP)
Joules (JOUL) guides FY rev and pretax ahead of consensus expectations of £187m and £4.1m. [SP=259 Cap=288m]
U and I (UAI) CFO leaves in June. He is not thanked. Replacement found. [SP=93 Cap=117m]
InfraStrata (INFA) £1.6m contract for ferry repair. [SP=29.67 Cap=32m]
Invinity Energy Systems (IES) to jointly develop a grid-scale vanadium flow battery with Gamesa Electric which will fund $4.6m of project. Also Gamesa gets option over 10% of co at 175p., the Dec placing price. [SP=123 Cap=107m]
ULS Technology (ULS) guides FY(Mar) rev down 18% and U/L pretax -£0.8m, ahead of mgmt exp. Also "Andrew Weston, Co-founder and Innovation Director, has decided to resign as Director with immediate effect. He will continue working for the Group in a part-time advisory capacity." [SP=96 Cap=62m]
Revolution Bars (RBG) since opening bars which are open have traded extremely strongly with rev down 52% despite having only 15% capacity. Guides FY(June) ahead of management expectations. [SP=32 Cap=40m]. I hold.
In line: Kromek (LON:KMK) Vector Capital (LON:VCAP)
Hi Jack, can you take a look at the FY results for Angling Direct (LON:ANG) please. At first glance, FY21 numbers look much improved with a positive outlook for FY22 developing also.
Hi RJLZ,
I like the look of the Angling Direct (LON:ANG) results. The problem previously for me has been the lack of profit margin and the fact that there's nothing particularly 'different' about the products it sells.
But the tone of the commentary and its emphasis on creating a genuine community could be a way to create more enduring value. And the own brand line is gaining traction, which should further help margins. Plus good work looks to have been done on pricing discipline & cost base management. So it is one I would like to take a deeper look at.
Good Morning Jack. ULS duly deliver. Have to admit there was very little news about this when I bought a few months back but great scores on all metrics on Stokopedia, and a very positive report from a small investment trust have helped restore the sp in recent days. All estate agents reporting frenzied activity and 'the busiest they have ever been.' In fact completions are take longer (12-18 weeks) and solicitors are turning away conveyancing work.
I've been following Uls Technology (LON:ULS) very closely in recent weeks. Prior statements from management regarding DigitalMove were very encouraging. This was before the new CEO came on board. Since then looks like he's moving their software solutions onto cloud platform to expedite delivery.
"Accelerated Investment to monetise DigitalMove. While DigitalMove firmly helps enhance our existing platforms, we also believe that it has huge potential as a standalone product and that there is significant opportunity for it to become the leading player in the conveyancing digital client-interface market. Initial feedback and case statistics have been very positive and as a result of expressions of interest from a number of conveyancers to integrate their case management systems with DigitalMove, we believe that now is the time to capitalise on this opportunity. Therefore, we plan to utilise existing cash facilities to accelerate the development of DigitalMove as we significantly increase the resource devoted to this new product. In the short term this investment is expected to impact Group profitability by circa £1 million in the next financial year before the product starts to generate significant revenue and margin later in the development plan. However, we believe that this is a unique opportunity for the Group and that time to market will be a decisive factor in determining the extent of the success of the product. The accelerated investment is a key driver in the Group’s new ambition to double profitability within three years of the investment, a target which we expect to be able to achieve from internally generated cash flow. Importantly, DigitalMove presents a substantial new revenue opportunity. We aim to have an annual run rate of over 50,000 incremental transactions going through DigitalMove by the end of FY21 and to be starting to earn revenue from some of those transactions by that point. The Group is determined to take advantage of this unique product and looks forward to updating shareholders on the acceleration of investment over the coming months."