Small Cap Value Report (Wed 01 Dec 2021) - STVG, PDG, VLG, REDD, D4T4

1st Dec '21 by Jack Brumby

69 comments 10005 reads

Good morning! It's Jack & Roland here with the SCVR for Wednesday.

Agenda -

Jack's section:

Stv (LON:STVG) - strong end to the year, with full year total advertising revenue expected to be up by 22%-24% year-on-year. Modestly valued, growing, with a good market position, but the financial risks of its pension scheme continue to dominate the investment case.

Venture Life (LON:VLG) - collapse in share price this morning (now 27% down) due to multiple ongoing challenges. Revenue and adjusted EBITDA marked down for FY21 and FY22. Sentiment and confidence has been smashed here; management does not appear to be executing so I'm not really tempted regardless of valuation.

D4t4 Solutions (LON:D4T4) - the company is winning contracts and operates in some attractive growth markets, but the valuation is high and a potential derating is a concern. The business itself looks interesting, so perhaps one to put on the watchlist in case it's ever on sale.

Roland's section:

Pendragon (LON:PDG) - the second profit upgrade in two months from this car dealership group. Turnaround efforts have provided a tailwind to the extraordinary market conditions we’ve seen. But how long can it last? I think there might be better choices elsewhere in this sector.

Redde Northgate (LON:REDD) - a strong set of figures from the vehicle hire and accident management group, which has also benefited from shortages of new vehicles. However, I have concerns about the trajectory of growth as post-merger benefits and pandemic effects ease.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment…

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Helvellyn

1st Dec '21

£REDD ( i hold)

Very happy with this morning's interims but i could find no reference to its acquisition of Charged EV in July. Although at the time it was very small ( 20 or so EV charging point installers) I thought there may have been some reference to it today. Have I missed it somewhere ?

Richard

Revs8

Hi abtan

I'm not sure the short term Revolution Bars (LON:RBG) share price is based on anything more than sentiment towards the effect of Omicron (doesn't it sound like a Marvel character!). If the variant is deemed more potent then you've done the right thing.

I'm holding onto Revolution Bars (LON:RBG) on the basis I believe Omicron is not as significant as the papers would have us believe. If we do get some good news in the next week or two then I expect Revolution Bars (LON:RBG) share price to surge regardless of the fundamentals.

Let's hope we can have an unrestricted Christmas!

Threepeat

re £LGRS.

It appears my local town centre has permission to open a branch where clothes shop Bon Marche used to be so I shall be interested to try it's fare and report back

JohnEustace

Re Redde Northgate (LON:REDD) I said at the time I viewed the Charged EV deal as an acquihire - a way of buying in capability and not something that would move the needle much by itself. They do get a mention in their commentary on their electric vehicle initiatives:

Our Electric Vehicle ('EV') proposition has continued to strengthen with over
400 workshop technicians now fully trained on EVs. As part of our commitment
to electrify our fleet and our aim to be at the forefront of the transition to
EV, we have signed a memorandum of understanding with an electric vehicle
manufacturer for the supply of 5,000 electric LCVs over a four year period
through to 2025 which supports our plans to drive positive changes within our
customer base. This will be one of many developments as we broaden our
relationships with existing and new vehicle manufacturers across our rental
fleet of over 120,000 vehicles and is supported by our acquisition of Charged
EV in July 2021 which installs a wide range of commercial and domestic
electric charging points.

Thank you John I had a feeling i had missed it.

johnmhughes

Hi Revs 8.

I hope you are right about Revolution Bars, because I am sitting on a fairly substantial loss.

I am of the opinion that they will come back, but when, is anybody's guess, That is why I am continuing to hold.

Zipmanpeter

Re Revolution Bars (LON:RBG) (and all the hospitality shares I hold) - I suspect the Govt is hoping to hold out from any lockdown/restrictions on pubs/clubs etc until after Christmas if at all possible.

Hospitality sites like nightclubs might then be almost be glad to close in Jan as trade is usually so slow they lose money then anyway - esp if the Govt threw them some cash.

Of course what we have learnt from previous lock downs is that older/vulnerable/fearful consumers may self- isolate/restrict voluntarily ahead of guidance. I believe pub groups like Wetherspoons are reporting older consumers are down vs 2019 but that younger consumers are back out there and spending.

Mixed Govt messaging does not help anyone.

(Regardless of your long term political loyalties, who would put this current useless cabinet in charge of any business they owned !!)

Buildalot2013

Fred9566 re SCS. Many thanks for a very interesting and helpful comment. Much appreciated

grumpy5

Of course they can.

Kevin Holloway

anyone got any idea why Cornish Metals Inc (LON:CUSN) is up nearly 40% today? I can't find any news

KevinS1

Any AGM I have attended has had more Private Investors than II's. Free coffee & lunch is a draw for lots of people with time on their hands.

Cornish Metals Inc (LON:CUSN) No idea, but its issued three-times as many shares compared to 2020 and has never made a penny of profit nor had a single penny in revenue. Seems like something for widows and orphans only. Good luck........

abtan

Scs (LON:SCS)

Hi Rustbucket

Cash for the company works as follows (apologies if you already know this):

Cash/credit card paying customers (which is 50% of customers) need to pay a deposit when ordering, with a full payment made up to 8 weeks later and before delivery.
For customers taking the finance option (which is the other 50% of customers) SCS is paid from the financing company 2 days after the customer receives their order.
Suppliers are normally paid in the month following delivery.

So if a customer ordered back in September and received their sofa today, there's a chance that SCS have already received 100% of the customer's money and won't need to pay the supplier until the end of January.

It's a remarkable cash position to be in...unless the suppliers asks for their payment earlier given the very long lead times/supply chain issues...

On that note, I should add that the company did finally respond to my email this morning (do they read the SCVR?) and confirmed that no suppliers have asked for changes to payment terms or for support.

I remain wary, but I certainly understand why some would want to hold this one.

Good luck to all holders out there.
Cheers
A

Hello again rmillaree

I could be wrong, but I wonder if the inventory stock is what is used in showrooms, so it's not really something the company can use on a regular basis to fulfil orders?

Hi sevenccc

Loungers (LON:LGRS) - my apologies, I should have used the word "declining" LFL's, not negative.

I skimmed through the webinar presentation from this morning and there is a table showing underlying LFL sales dropping from 13.6% (for last 20 weeks of H1) to 12.2% (for 28 weeks up to November 28th) i.e. a decline.

One thing that I thought might be clouding the figures was the company's definition of "Like for Like."

I would normally assume that this compares the same sites opened in both H1 FY20 and H1 FY22...but it looks like the company is actually including the 16 sites opened between April-November 2021 in their LFL comparisons - happy to be corrected if I've misunderstood this.

Overall the sites 'on average' still look they are - unsurprisingly - performing better than 2 years ago (about+16% by my very calcs using the highlighted numbers below) , but I must admit to being unsure if I am understanding the figures correctly.

I haven't spent enough time on Loungers, so apologies for any misunderstandings.

---

I have, however, done quite a bit of research on Revolution Bars (LON:RBG) .

I've held for a while and remained positive for years. The company makes so much cash, the current EV looks quite ridiculous to be honest.

Which is why I was so surprised by the tepid share price movements after the last very positive trading update.

My feeling is that whatever happens with Omnicron, the share price won't actually increase very much in the short term so any upside is limited.

However, I did notice something in their investor presentation last month - a table that showed LFL's in recent weeks (vs 2019) at 0%. That took me by surprise and it was not something that they highlighted or dwelled on.

I personally think that if Omnicron is worse than expected, or LFL's stay at 0%, then this will hurt sentiment of the company, which in turn would damage the share price, irrespective of the fundamentals.

As I see it therefore, there seems to be more downside risk than upside benefit, at least in the short term.

I would be happy to buy back in after the next trading update when things are a little clearer, even at a higher price.

Good luck to all Loungers (LON:LGRS) and Revolution Bars (LON:RBG) holders out there.

Cheers

pinstripe

We all are,

Effortless Cool

IIs don't come to AGMs because they can access management directly. PIs do come, in many cases for the reasons you set out, although you do actually get some very knowledgeable, well-informed ones too. Thus, in my experience, AGMs tend to bring a mix of inane and challenging questions for the directors.

In my view, it's well worth companies encouraging PIs to come to AGMs, even (especially?) the inane ones, as having a substantial block of loyal PIs can be very useful in times of crisis, e.g. hostile takeover attempts, and PIs are certainly much more loyal investors than IIs, who are invariably focussed on the next quarterly return.

Perhaps you could become a stocko writer.... Maybe vacancy soon!

mojomogoz

2nd Dec '21

Haha. Thanks, that's sweet ;) But I hope there's no vacancy and I couldn't live with the production demands. Quite amazing how much Paul and Jack go through in a day whilst still maintaining quality...I'm lazier and not how my head works really either as I have mental mess with occasional moments of clarity. Plus I wouldn't entertain nearly as much!

Rusty2

Thanks Abtan, but my point was with delays in supplies then SCS will be holding more cash than normal. Say a sofa normally takes 2 months to be delivered from order but now it is 4 months on average, then SCS will be holding cash for 2 months longer than normal. I'm reading some reviews saying it's taking 6 months for orders to be delivered. The issue is if orders are delayed then customers are more likely to cancel, so really all this cash is not in the bank. So I think the cash position is flattering at the moment.

Small Cap Value Report (Wed 01 Dec 2021) - STVG, PDG, VLG, REDD, D4T4

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Jack Brumby

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