Small Cap Value Report (Wed 01 Dec 2021) - STVG, PDG, VLG, REDD, D4T4
.jpg&w=384&q=75)
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 decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.
Jack’s section
Stv (LON:STVG)
Share price: 335p (pre-open)
Shares in issue: 46,722,499
Market cap: £156.5m
We’ve covered STV before - it’s got a great (somewhat unique) market position as Scotland’s most popular terrestrial TV channel, with a growing digital back catalogue. It’s similar to Itv (LON:ITV) but the only thing ruling it out for me recently has been the state of the balance sheet, and more specifically, the pension deficit.
A shame that such a promising company is compromised by a negative net asset value. The largest line item in Liabilities is this pension deficit, which has recently reduced from a £127m pre-tax deficit to a £116m pre-tax deficit on a triennial actuarial basis. The 2021 deficit recovery payments will total some £9.3m, with annual payments then increasing at the rate of 2% per annum over the term of the recovery plans. This is less than the previous plan but still very significant.
If meaningful progress can be made on the pension deficit, then the trends are otherwise positive. Trading is good and the company is modestly valued, reflecting the financial risk (note though, that an improving pension deficit can be a strong catalyst for equity).
The group’s broadcast channel, accessible free-to-air on all the main TV platforms in Scotland, reaches 3.2 million viewers each month. STV Player is the UK’s fastest-growing broadcaster streaming service, with over 3,000 hours of drama, sport and factual entertainment series. This part of the company has grown significantly over the past year.
STV Studios is Scotland’s biggest production company, with commissions spanning BBC One and Two, ITV, Channel 4, Channel 5, BBC Scotland, Discovery, VH1/MTV and Sky One.
Previous guidance that STV Studios is on track for its best ever financial performance in 2021, with full year revenue of £20-25m, is reconfirmed today.
Total advertising revenue for the full year is expected to be up by 22%-24% year-on-year, helped by a stronger than expected final quarter.
Within that STV expects regional advertising to finish the year strongly, up around 20% for 2021, and 15% ahead of 2019. VOD (video on demand) advertising on the STV Player is expected to be up 35-40% for the full year, over 50% ahead of 2019 levels.
Q4 advertising has shown continued good momentum, despite strong comparators from Q4 2020, and is expected to deliver TAR growth of +13-15%, with regional advertising up a further 15-20% and VOD up around 10%. Within that October TAR was +15%, November +20% and December is expected to be up 5-10%.
There’s also good news in the STV Growth Fund, which will be increased from £20m to £30m in 2022. ‘Since launch in 2018, the STV Growth Fund has allocated £15.7m across more than 700 deals with Scottish SMEs, attracting over 300 new advertisers to television.’
STV Chief Executive Simon Pitts said:
The speed and scale of the advertising recovery in 2021 has far exceeded our expectations and underlines the enduring power and relevance of high-quality video advertising.
2021 will deliver STV's highest ever advertising revenues, with brands choosing broadcast and video on demand advertising to boost their post-Covid recovery due to its unrivalled levels of trust, brand safety and value.
Conclusion
I like STV as it’s something of a unique asset with a strong market position and an expanding content catalogue. It’s modestly valued and growing, too. The pension deficit is a big risk though - rising interest rates help here, as the impact on the discount rate used to value these funds tends to have a more significant downwards impact on scheme liabilities than it does on assets.
Investors rarely have access to all relevant information, and pension schemes are a good case in point. It can be very hard (ie. impossible) to get granular detail on the composition of these schemes. But should the funding situation improve, that can be a material catalyst for equity value. This situation makes the group very risky though, and probably uninvestable for some investors.
In my view, it is not particularly prudent to be paying out dividends to shareholders when pension scheme contributions are set at £9.2m and increasing at 2% each year thereafter.
This (big) point aside, the group is trading well, and I do like it. Perhaps time spent delving into the pension scheme will pay off but in my experience shareholders get limited information here.
Here’s the impact in FY20:
The 2020 accounting deficit was £70.3m, so I wonder why the updated actuarial valuation comes out at a notably larger deficit of £117m. The auditors didn’t find the scheme valuations to be materially misstated in FY20 but did note:
All actuarial assumptions fell within our observable/expected range based on the nature of the schemes and scheme experience, albeit, mortality rates continue to be at the lower, more optimistic end of the range.
Looking through Note 26 of the FY20 annual report, we see that a decrease by one year in the rate of mortality would decrease scheme liabilities by 4%, so presumably an increase would lead to a 4% increase in liabilities. By the sounds of it, if we wanted the group’s assumptions to be completely in line with the market, something like this would need to happen but it’s hard to quantify.
For all the group’s good work, taking a view on the financial risks of the group’s pension scheme remains the most important factor here.
Venture Life (LON:VLG)
Share price: 34.83p (-27.43%)
Shares in issue: 125,831,530
Market cap: £43.8m
A notable decline in value here, commiserations to holders. The share price is right back to where it started before its 2020 rise, and is now comfortably below its 2016 IPO price.
This is a short update that raises more questions than answers. A c24% drop in share price either reflects the current risk-off sentiment or possibly a longer-running exasperation with the management team here.
In the Interim Results, reference was made to some of the challenges that the Group had been experiencing. These challenges persist; the ongoing impact of COVID continues to affect confidence across many markets, with some customers choosing to reduce inventory, rather than place new orders, and also to delay orders at short notice.
I wonder which products are referenced here? I don’t see why customer and consumer confidence would affect sales in Dentyl mouthwash, for example. That’s exactly why this kind of consumer defensive company is supposed to be so valuable.
The industry continues to experience increased input prices, not all of which can be passed on to customers immediately, along with supply shortages for some components, and the well publicised issues with truck availability / pricing have created additional uncertainty surrounding logistics.
Again, you would hope brand owners had some degree of pricing power when it comes to passing along input cost pressures. This is an area affecting many businesses, but I would suggest that other management teams have perhaps done better at navigating these challenges.
The Company's Chinese partner has continued to disappoint against expected levels of sales and, as a result, the Company is exploring alternative opportunities to ensure that sales in China are maximised in 2022 and beyond.
The Company continues to await the publication of the peer-reviewed in vivo study carried out by Cardiff University, which was completed in April this year... Further, the Company notes the recent announcement made by Salisbury Hospital regarding specific mouth care guidance for patients with Covid-19. As well as regular toothbrushing, the guidance also suggests that both Dentyl Dual Action and Dentyl Fresh Protect should be used. The Company understands this guidance was based on research conducted by Doctors at Salisbury Hospital, as well as the in-vitro (lab based) results widely published by Cardiff University in November 2020.
This always struck me as slightly opportunistic. Was mouthwash ever going to move the dial when it comes to combating a global pandemic? I’d rather hear about why Venture Life’s products position it as an attractive consumer defensive company with long term organic growth potential, not how it miraculously might be the last line of defence against Covid according to Cardiff University.
Jerry Randall, CEO of Venture Life, comments:
As we highlighted in September, and has been reported widely in the media, trading conditions at this time are challenging for many businesses. More pleasingly, we are beginning to see positive traction in passing some price increases onto customers, although this will take 12 months to fully wash through.
… The challenging trading conditions mean that we are now more cautious about the levels of growth that we expect in the immediate future, but we are confident that our growing revenues will deliver growing profitability.
Conclusion
There’s more than the usual amount of things not quite working out here, so I’m skeptical. Supply chain disruption I understand and, while a delayed study might be frustrating, were Covid-related mouthwash sales ever going to be a source of enduring value for shareholders?
The chair and CFO are both leaving the company, which seems quite sudden. While chairperson Lynn Drummond has been on the board since 2013, the CFO only joined in May 2019.
FY22 revenue guidance is also being marked down by Cenkos even though the company ‘continues to look to 2022 with confidence’. Due to the leverage in the business, Cenkos is reducing adjusted EBITDA by 23% in FY21 and 27% in FY22.
The group says its acquisitions are integrating as planned and it’s getting to grips with passing on price increases, although the full effects of this will not be felt for another 12 months.
But the direction of travel here is all wrong, and sentiment and confidence looks shot. In fact, if you want a snapshot of that sentiment, see mojo’s comment below.
In the short term, these are what drive share prices so I can’t see a recovery for at least a couple of months. I might be wrong on that, but I suspect investors will have some time to analyse the group’s position and revised prospects.
The group does have a large net cash position of around £35m, so it’s not in terminal danger. A total collapse in sentiment can lead to deep value opportunities, but this does not strike me as an enticing prospect. There are quite a few plates spinning here, and they look rather wobbly at that.
Edit: the group did have a large net cash position - at the end of FY20. Since spent, with H1 21 net debt of c£7m.
Needless to say, directors ‘are pleased with the progress’ and ‘see many reasons to be optimistic’...
D4t4 Solutions (LON:D4T4)
Share price: 315p (-4.55%)
Shares in issue: 40,257,058
Market cap: £126.8m
D4T4 has many of the characteristics you might expect of a high quality software company:
- Net cash position,
- Steadily increasing revenues,
- Double digit profit margins,
- Strong cash conversion and free cash flows,
- A high Quality Rank (78 in this instance), and
- Premium multiples-based valuations.
In terms of its products:
Celebrus CDP automatically captures, contextualises, and activates user-based behavioural data in real-time across all digital channels. Through behavioural biometrics and analytics, Celebrus FDP helps companies prevent fraud before it happens. Celebrus CDM provides an enterprise platform that automates the integration and transformation of customer data from all relevant data sources, whether on-premises or cloud, to deliver customer and regulatory analytics.
The recurring question with these types of companies is whether or not the high multiples paid today are in fact cheap after accounting for the group’s medium to long term growth prospects and potential operational leverage.
There are also the shorter term prospects to consider, primarily with the risk of a derating should forecast growth be pushed back. This has happened to Eleco (LON:ELCO) for example, which has seen its FY21 and FY22 EPS forecasts nudged down as it transitions towards recurring revenue spread over a longer period of time.
Highlights:
- Revenue +49% to £7.6m,
- Annual recurring revenue ("ARR") stable at £10.4m (H1 FY21: £10.1m, FY21: £10.6m)*
- Gross margin improved from 48.6% to 53.2%,
- Adjusted PBT up from a loss of £0.6m to £0.1m,
- Adjusted EPS up from loss of -2.38p to 0.22p,
- Cash up from £12.1m to £16.1m with no debt,
- Interim dividend +4.9% to 0.85p.
The fall in ARR was due to the loss of an airline industry customer affected by the pandemic and ‘conversations continue with that customer to bring them back into the fold’.
A period of change, according to the group, positioning it for ‘accelerated growth in the coming years’. The strategy remains based around the following:
- Increase revenues from the Celebrus family of products,
- continue the transition to an ARR model and grow ARR significantly in the coming years,
- invest in the next generation of Celebrus products; and
- drive international expansion and gain market share in key markets.
Contract wins in the period include a new multi-year contract win with an existing Norwegian banking customer, as well as contract upgrades with a European based retailer, and a US based top 10 global insurance provider. There are more, across both CDP and CDM.
Product innovation - Celebrus Customer Data Platform (CDP)
In May 2021, D4t4 launched Celebrus CDP version 9.4 with new features which we believe deliver unrivalled identity capabilities to the marketplace. These now include the world's only first-party real-time Identity Graph as well as a Profile Builder. These enable the "collect once, use many" data mantra of Celebrus CDP and enable the efficient activation of customer data in downstream applications.
… The Group believes that no other industry solution overcomes the challenges of identity, compliance, and activation to deliver genuine, individual-level data in the way that Celebrus CDP does.
D4T4 also launched its Celebrus Fraud Data Platform (FDP) in June 2021, which captures and contextualises data for real time fraud detection. The group says this is ‘the result of two years' design and development work and significant R&D investment by the Group into the large and growing market of fraud protection software, estimated to be worth over $12 billion per annum.’
International expansion - a new office opened in Australia enabling the development of local relationships in the Asia-Pac region with global partners. D4t4 expects to add further headcount in Australia, on top of new headcount recently added in North Carolina, United States and Chennai, India.
Acquisition - In August 2021, the group acquired Prickly Cactus, a UK data and analytics consultancy.
Current trading and outlook:
The Board remains confident in delivering a strong finish to FY22 with second half prospects well underpinned by good visibility on new contracts expected to be signed in H2, and a significant pipeline of business in negotiation with new and existing clients.
D4t4 continues to invest in its international markets, product innovation and strengthening partner relationships in line with the substantial market opportunity.
Conclusion
I do struggle with the valuations of some of these software companies, as conservatively financed and as large as their addressable markets can be.
A risk is a more general cooling on tech sentiment or a rotation into value - on a forecast PER of 38.4x, what’s to stop D4T4 from derating to 25x-30x and trading at those levels for a few years? It would still be a conventionally ‘expensive’ multiple. This hasn’t happened so far, and the five-year share price performance is good.
Cash collection has been impressive but ARR growth has stalled due to the (temporary?) loss of an airline customer. I’d want to see more growth given the high PER.
The company does seem to have attractive products that are winning contracts in large markets, so if it scales up then profit growth could accelerate. But with no specific knowledge of just why its products warrant such a high rating, I’d still want a cheaper multiple before considering it.
Roland’s section
Pendragon (LON:PDG)
Share price: 19.8p (08:15)
Shares in issue: 1.4bn
Market cap: £265m
Strong performance to date in Q4. Further upgrade to full-year underlying PBT expectation
It’s no secret that the big car dealers are generating exceptional profits at the moment. A shortage of new cars has enabled dealers to expand their profit margins on the cars they do sell.
Guidance upgraded: The impact of this is remarkable. Today we have Pendragon - whose brands include Evans Halshaw and Stratstone - upgrading its profit forecasts for the second time in two months (kudos for such clear guidance):
- October 7: pre-tax profit guidance upgraded from £55m-£60m to “approximately £70.0m”
- 1 December: pre-tax profit profit guidance increased “to approximately £80m”
In less than two months’ trading, Pendragon’s estimates of its profitability for the final quarter of the year have increased by £10m, or nearly 15%.
Is the shortfall easing? What caught my attention in today’s update was a possible hint that supply problems might be starting to ease.
Pendragon says that the main reason for today’s upgrade was that the supply shortfall (versus orders) of new cars in October and November was lower than expected. This enabled the company to deliver more cars than planned during the months, bringing forward revenue and profits.
Pricing also remains strong - no figures are given, but management says that gross profit per unit remains “strong”.
Similarly, used cars are selling well and enjoying “improved gross profit per unit”.
Outlook: Management remains cautious about further disruption from Covid-19 and supply chain issues. But with one month of the year remaining, the firm is confident it can hit today’s upgraded profit forecasts.
Is Pendragon’s turnaround complete? The global chip shortage and resulting restriction on new car production has left the car dealership group enjoying exceptional profit margins. For how much longer, we don’t know.
Despite this, investors are still keen to put money into this sector. Marshall Motors received a generous (in my view) takeover offer earlier this week. Shares in rival Vertu Motors (I hold) are trading at post-Brexit highs.
However, Pendragon shareholders have not enjoyed such big gains:
One reason for Pendragon’s more lacklustre share price performance is that the company was in turnaround mode prior to the pandemic.
A new strategy unveiled in 2020 has streamlined the group’s dealership network and improved its online capabilities and used car operations. These changes have provided an additional tailwind to the market forces we’ve seen at work over the last 12 months.
One notable impact of this fortuitous timing is that Pendragon has been able to clear its financial debt. September’s interim results showed adjusted net cash of £9.5m, compared to a net debt figure of £100m at the end of 2020. (This adjusted figure excludes lease liabilities and vehicle stocking facilities, hence why it doesn’t match the figure shown on the StockReport.)
My view: Based on today’s upgrade, I estimate Pendragon shares may now be trading on a 2021 forecast P/E of 4.5x. That’s obviously extremely cheap, but I see this as a reminder of what’s likely to happen next.
At some point, the supply of new cars will once again match or exceed demand. I’d guess this will be in 2022. When this happens I expect competition for customers to drive margins down to more normal levels. In my view, profits at the big dealership groups could fall by 25%-50%.
Pendragon seems to have made good progress with its turnaround. The firm has been able to strengthen its balance sheet without requiring a rights issue. But shareholders haven’t received a dividend since 2018 and the stock is still well below historic highs. I think there’s a risk this could be as good as it gets for a little while.
If I was buying shares in this sector today, I’d choose Vertu or perhaps Motorpoint, both of which have more consistent track records. Personally, I can’t see much reason to buy Pendragon shares today.
Redde Northgate (LON:REDD)
Share price: 421p (+7% at 08:40)
Shares in issue: 246,091,423
Market cap: £1.0bn
This van hire and vehicle repair/credit hire group is a little above our normal size limit, but I’m going to cover it in response to a reader request. I know that Redde Northgate has been a regular feature in the SCVR over the last couple of years.
Indeed, shareholders who bought during the early part of the pandemic (or even before) have enjoyed a multibagger. The shares are now above pre-pandemic levels:
But they could still offer decent value based on current forecasts:
Stockopedia’s algorithms seem to like the shares too, awarding them Super Stock status and a StockRank of 98.
Let’s see if today’s results have changed the picture at all for this “mobility solutions provider” - a combined vehicle hire, fleet management, repair, and claims management operation.
Half-year results highlights: At first glance the numbers certainly look strong,
I think it’s worth remembering that this business doesn’t have much of a track record to provide context for these numbers. The merger between Northgate and Redde only competed on 21 February 2020, after which the business was plunged straight into the pandemic.
My impression is that some of the gains seen over the last 18 months have been generated by one-off cost-saving measures and tailwinds linked to new vehicle supply restrictions. Even so, these do look like a strong set of figures to me.
Redde Northgate’s quality metrics also seem to be holding up, at least on an adjusted basis:
For what it’s worth, my calculations show ROCE of 9% on a trailing 12-month basis. That’s not bad for a business of this kind, in my view.
Balance sheet: The main risks I’m looking for here are debt and cash generation.
Redde Northgate’s rental fleet of 120,000 vehicles requires debt financing and regular capex. The free cash outflow seen over the half year reflects £189m of vehicle purchases (1H21: £138m). As far as I can tell, this was split roughly equally between replacement capex and growth capex.
I expect to see positive free cash flow for the full year, albeit at a lower level than last year. In the meantime, I am prepared to accept the company’s steady state cash generation figure as evidence that underlying cash generation is continuing to improve.
The company says that its net debt excluding lease liabilities is £470m, which is equivalent to 1.5x EBITDA. That’s stable and within the company’s target range of 1x-2x. I’d argue that 1.5x is probably high enough, especially given the potential pressure on rental margins when the vehicle supply chain normalises.
Even so, I don’t see any cause for concern with REDD’s balance sheet at this time.
Business update: Management commentary seems fairly encouraging. Accident and incident numbers are now said to be at 90% of pre-Covid levels. This is helping the Redde business return to normal.
Looking ahead, Redde has won multi-year contracts with insurers including Tesco and Admiral that are said to have a lifetime value of over £200m. These deals are expected to contribute to results from FY23.
In the meantime, the Northgate van hire business is benefiting from good demand and strong pricing, due to the constraints on new vehicle supply. This is also boosting margins on used vehicle sales, albeit on lower volumes than normal.
Helpfully, the company provides a snapshot showing how revenue and profit are distributed across the business:
Stripping out the segmental margins some marked differences:
- Rental margin: 17.5% (1H21: 12.0%)
- Vehicle sales margin: 30% (1H21: 14.4%)
- Claims and services margin: 5.7% (1H21: 1.0%)
Profits from rental and disposal contributed 89% of underlying operating profit during the first half.
It’s worth mentioning that the rental business has also benefited from the supply chain problems that are boosting profits for car dealers. According to management, margins on the UK rental business rose from 12.7% to 17.6% during the first half, thanks in part to “tight controls over customer pricing”.
I wonder how much of this margin increase will be sustainable when supply chain conditions normalise. Northgate’s hire business has good scale in the UK market, but it’s a competitive sector and there are other larger players, too.
My view: I have to admit I’ve always been sceptical about the combination between Redde and Northgate. In my view, Northgate shareholders got the worse part of this deal. Today’s results haven’t really changed this view.
From my perspective, Northgate’s van hire business has good scale and decent margins. Continued growth should be supported by structural trends in vehicle ownership and fleet management.
In contrast, Redde’s core accident management business is low margin and could be subject to regulatory risk.
However, I accept that the combined group does seem to be trading well at the moment. The balance sheet isn’t too bad and cash generation seems acceptable.
Looking ahead, broker forecasts suggest earnings revenue and earnings growth are likely to slow in FY23.
Despite this, I don’t see any reason why this business shouldn’t be able to continue delivering incremental growth for the foreseeable future.
Due to the level of leverage and the relatively modest profitability of this business, I don’t think the shares deserve a high rating. The stock’s current valuation on c.10x forecast earnings looks reasonable to me and may offer some further upside. The dividend yield of 4.5% is certainly attractive.
However, I’m not convinced the shares are an obvious bargain, as they probably were 12 months ago.
If I owned REDD shares today, I’d probably continue to hold. But as a potential investor, I intend to stay on the sidelines to see how this business matures as pandemic conditions ease.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
69 comments
anyone got any idea why Cornish Metals Inc (LON:CUSN) is up nearly 40% today? I can't find any news
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........
£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
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.
Richard
Clinigen (LON:CLIN) If anybody wants proof of how crazy the stockmarket is, take a look at this one. They release an RNS this morning with a headline "ERWINAZE® approved in the United States" but the body of the RNS was about ERWINAZE not getting approval in the USA. The price drops 8% and then recovers to 6% up, higher than yesterdays close.
slopsjon - agree! Amazing that misleading headlines like this are allowed to be issued to the market. There should be a withdrawal, correction and apology for this nonsense. Who can trust a management that issues statements like this?
Redde Northgate (LON:REDD) I think Roland is right to point out that they've benefited from vehicle shortages, which has helped margins. However, I think these shortages are likely to persist for a good while yet so can see more positive trading upgrades next year. Moreover, even on normalised earnings I think it still looks pretty cheap so I'm definitely holding on (and would buy if I didn't hold!). Remember that the Redde side of the business should also pick as traffic volumes increase, not to mention the new contract wins.
Impressive interim results from Loungers (LON:LGRS) . Still in growth mode, 25 new sites will be opened by year end. Net debt reducing although they never had a debt problem. topline revenues up 26.6% compared with Covid free 2019 period. I hold.
Hi QARPY
I'm on my phone now, so my replies sometimes don't appear correctly and I'm unable to edit. Hopefully this comes through OK.
I fully sold out of my revolution bars position this morning after today's loungers result.
Today's results implied negative lfl's since early November. The RBG investor presentation last month seemed to show a similar trajectory.
I imagine therefore that if there's going to be a short term surprise for RBG, it will be to the downside.
Or I've just sold out at a ridiculously low price...?
A
abtan
I'd be interested to see your sources/calculations that arrive at negative like for likes since early November. I can see a significant reduction in the period from 3 Oct to 28 Nov but estimate this as still decently positive, though accept I may be wrong in this.
And unless Omicron forces closures or greater restrictions not sure Revolution Bars (LON:RBG) will suffer further either. Fingers crossed for everyone for Christmas and New Year festivities.
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
A
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!
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.
We all are,
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 !!)
Agreed Qarpy that Loungers ( LGRS) results look very good.
Might be a red herring but why do you believe the management have adopted a strategy for continuing to quote “ market out-perform” ? Its repeated half a dozen times in their report. Im sure they are right, just wondering what is the point in continually banging on about it ? What benefits does it give the company to say this - presumably there is some commercial logic ? Maybe helps with lenders/ financing good story etc ?
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
Scs (LON:SCS)
IMO its absolutely nailed on certain that they should do buyback. I like the company operationally and owned in the past from approx 150-220p picking up near 10% dividend on my purchase price.
I sold couple of years back following the interest in acquiring sofa.com. IMO that signalled that mgt were more interested in using capital to seek speculative growth rather than enhance shareholder returns. Sofa.com would have taken a lot of attention and money to make into something decent and would see SCS risk time and cash in a market segment outside the one they are highly adapted to and superb at.
SCS should target at last 5% pa share buyback and really should go for more (like 10%) and grow the dividend per share that way. Then whatever modest growth they can add by opening new stores that fit their optimum out of town model is a real added bonus. Plus there is a modest implied tailwind from the closing down of old unproductive sites that were recklessly opened in the dash for growth in mid Noughties (their success now is linked to hard lessons learned then). Then you could have a stock with secure niche, moderate GDP linked top line growth and bottom line hitting into impressive mid teens with a growing dividend per share too. I'd buy that. Mgt seem not to find that dull long game shareholder capital well stewarded approach to be their cup of tea....
...I fear they are looking for more sex and violence...perhaps an acquisition with all that cash? Maybe re-shoring production and doing a brand makeover as part of that transition? They want to do something exciting with their (your) money.
Carpet was looking like a real nice little winner and grower/earner for them...but its cooled down as competitors have found their feet again. This maybe shows just how hard it is to adapt such a well defined niche brand like SCS.
SCS are strategically stuck. There will not be a private equity or competitor take out of them at anything other than very low valuation (don't pay up for little growth potential)...ie lower priced than today! Yet they can't achieve top line growth without taking significant transformative risk with the company.
I'll be sick if they go for the sustained buyback route and I didn't see it coming...but I have a feeling a year or two from now I get a chance to look at the transformation that SCS are trying to execute and get the option to buy into it at a price that is not far from today (and could be a decent touch lower as current shareholders don't buy the narrative).
Its not a bad company, in fact its a great little company...but it could be a real stinker piece of equity
I meant Stv (LON:STVG) !
Thanks for the Strathdon Investments Ord (LON:STV) write up Jack. Though higher interest rates will be beneficial for the valuation of the pension fund, rampaging CPI/RPI inflation will be very bad for the valuation.
Tpximpact Holdings (LON:TPX) as Gerard88 says below, superb H1 results. Revenue +77%. Profit after tax +109%. Adj dil EPS +81%. H2 has started well and the full year is in line with upgraded expectations. They reiterate their vision to achieve 10-15% organic revenue growth each year and by March 2025 a £200m run rate revenue. Here's an overview video & podcast.
Tpximpact Holdings (LON:TPX) management will present to investors tomorrow 2.12.21, at 11am. Please register here.
Yesterday Sosandar (LON:SOS) H1 results were also very strong. H1 Rev +184%. Incr gross margin to 56.5%. Excellent trade w 3rd parties. Trading ahead of expectations for FY. They've navigated around supply chain challenges, (and last year around CV19), very nimble. Today there's an investor presentation by both Co-Founders and the CFO. Please register here.
Also, excellent FY21 results yesterday from Treatt (LON:TET). Revenue +14%. GP margin +480bps. PTP +43%. EPS +39%. With a confident outlook. Here is the presentation given to analysts yesterday, 30.11.21 video & podcast.
Amazing management comment in today's Venture Life (LON:VLG) rns:
"Directors thank shareholders for enabling them to cash out a significant part of their holding at near 2020 highs and giving their cash so generously that we can pursue our dream of reloading equity compensation at super low price soon, following current and potentially more trading disappointment, for another big payout in 5 yrs.
As our pre acquisition businesses are rubbish (disguised by temporary very high margin covid hand sanitiser sales and some jolly hokum re mouthwashes saving the world) we may use our revolving credit facility to leverage the business into another acquisition. This may mean we need to recapitalise the balance sheet with an equity raise in 2022. This would present the ideal time to reset management equity compensation at really low prices.
Simon Thompson will likely then put us on his bargain share list helping us run a new ramping operation so as we can exit at a lovely profit"
https://www.investegate.co.uk/...
Brilliant mojo. That made me laugh, though sadly it is very close to the truth. Well done on your call many months ago.
Venture Life (LON:VLG)
Well thanks for the h/t Jack - I feel anointed by a deity ;)
FYI net cash position isn't good. Forecast by Cenkos to be c.£5m debt year end (2021 is second from end column)
-> VLG is without stabilisers....and most interesting is the deterioration in fy22 net cash expectations....I've stopped looking at company so don't have a good view on that but it seems quite troubling and I'd want to understand why before 'bottom fishing' it.
Note, historically the company has held a high amount of inventory. This is somewhat puzzling and suggests they already had supply/demand problems before the recent covid snafu on that sort of thing for everyone. My cynical guess is that management sell a lot of stock at a discount...and its almost like their Italian factory (odd history there and note the guy that owns the factory has made out like a bandit) produces to its targets then the UK plc sells whatever/however it can...obvs that is a too jaundiced view....?
I'd be very interested in how much of those receivables are adjusted out as non cash impairments & how much capitalised intangibles are "sold" this year - which may well require a placing.
Guessing Chairman/CFO are abandoning the adjusting ship
Directors have been taking the p*** since November 2020 - beyond credulity is generous.
I am a very fortuitous ex-holder
Perhaps you could become a stocko writer.... Maybe vacancy soon!
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!
Good interim results from Brickability (LON:BRCK) today
Tpximpact Holdings (LON:TPX) has come out with some outstanding H1 results. Definitely worth a look.
I thought that Paul / Jack as fellow holders ( I hold them in my SIPP and ISA ) of Scs (LON:SCS) would be interested in the conversation that I had with Alan Smith-Chairman of SCS following the AGM last Friday – in the end it was only fifteen minutes but a very interesting and informative 15 minutes . I found Mr Smith to be very welcoming and open to any questions I had regarding SCS
Summary
Although it was a short meeting I came out feeling more reassured than when I went in. The acknowledgement that the large amount of cash in the business was being addressed was welcome news. Like you I have a long term approach to this company and when you look at the Stocko numbers : Stock Rank : 93 , PE: 8.5 , yield : 5.8%,ROC : 19.3%,ROE: 54.3%, OM : 8.62% - this is clearly a quality business by any standard .With that amount of cash in the business something is going to happen -what that will be is difficult to predict .I continue to hold .
Fred9566, re Scs (LON:SCS) thank you so much for that. Very interesting. response on the alternative courses of action going forward.
Re Scs (LON:SCS), was there any indication please as to how much lower the margin is on items manufactured in the UK or Europe, albeit presumably carriage is a lot less?
sorry - only had fifteen minutes so stuck to the obvious questions
I am not trying to be funny here but a company with cash approximately 50% of its market cap just BUYBACKS its shares , unless the culture of the company does not cover the respect for its shareholders. This is what listed companies do when , and , if , their share price is massively undervalued.
Share buybacks spread the benefit too thin???. That’s a new one!!
Hire an investment bank Mr Chairman and they will tell you what to do with the excess cash , as it seems to me that you haven’t got a clue ; or perhaps need assistance in what to do with it.
yiannos1, I have to disagree with your "Share buybacks spread the benefit too thin???. That’s a new one!!" on the grounds that they can dissipate into thin air all too easily. Better a bird in hand than two in the bush say I, and life is too short to wait and see.
Silver
At least 7-10% buyback for a start.
Listed companies DO NOT HOLD 50% of their market cap in CASH.
They can go private and hold as much cash as they like.
That makes me sceptical about their cash position , but I hope that I am completely wrong.
Share buyback?
In defence of Mr Smith it was probably me that used the term "thin " - although I might be wrong I am not a fan of share buybacks .
fred9566
I am not a fan of share buybacks .
Sharebuybacks are fantastic where its known the shareprice is depressed and its known the future earnings of the company will be going in the right direction (future organic growth above inflation a must) Just look at next for example of how the shareholders own more than they did of sound business.
Most of the times people moan about buybacks they reference crap companies that don't really have decent future plan to grow earnings organically - picking a crapola company to prove buybacks don't work does not prove what you are trying to prove - it just proved you referenced a company that has not "delivered on the basics" - and was not worth investing in the fisrt place.Just look over the pond for how well buybacks work for good established viable long term businesses that can grow earnings organically.
An example of a questionable one at present is Aviva (i hold) - they have shedloads of excess cash and there is mass argument about whats best to do here. Ulimately sharebuybacks will only be good if their streamlined operations that are left do well - is that likely to be the case , i would have my doubts despite the positive tones from current management (who are doing well). The who was right answer (hand back cash or buy back shares)- really will depend on future earnings only - practgicably speaking its probably all a guess for that company
Very useful, thanks for that. I find it unbelievable that Scs (LON:SCS) have this much cash and yet have still not fully restored the dividend (let alone pay a special) . Simply no excuse to be hoarding shareholders money like this, which is one of the reasons I don't currently hold.
101% spot on.
Just imagine for a moment that a Chairman or a CEO in the US reads Mr. Smiths remarks.
Scs (LON:SCS) (no position)
Hi Fred
Thanks very much for taking the time to share your notes with us - most definitely appreciated.
---
For full disclosure I am one of those sceptical of the true cash position.
To save me repeating my thoughts, here's a comment I made last year https://www.stockopedia.com/co...
For clarity, I do understand why many believe that the company has a strong cash position. I should also add that I am an ex-holder.
---
Fred, if you have a contact within the company I wonder whether it might be possible to ask them a question on supplier payments.
This is my email to the company last week:
"Hi Richard
I have a query on supplier payments.
I believe suppliers are usually paid in the month after delivery to a customer has been made.
In light of recent supply chain pressures, are suppliers currently asking for quicker payments i.e. before goods have reached the customer, or even possibly before they arrive in the UK?"
I am yet to receive a response, and given the lack of reply, I remain even more wary.
---
Thank you again for sharing those notes.
Cheers
A
I don't have a personal relationship with anyone at the company so I can't help with your request
Scs (LON:SCS)
Ref the cash position i am inbetweeny the skeptics and those that think their is shedloads of excess cash.
Note i lost my shirt last time this one went pop - so there is very good reason why they have been ultra cautious ref cash.
all i would say is looking at the cash pot per the most recent acouts we have.
trade cash and cash equivalents £87 mill
trade and other payables £72 mill (excluding leases)
so my simplistic safe excess pot of cash is £15 mill
Beyond this and they are in hoc to suppliers or giving away customer deposits.
I have no doubt they could possibly give up to £40 mill back to shareholders now if they wanted to - its just the question of with this is prudent or not.
I don't hold at present but do see the attraction here - i think though ultimately is future earnings that matter - will be interesting to see how next 18 months pans out once the effects of the revesal of their "covid tailwinds" is fully digested - i would not be adverse to adding at current levels as things stand - its just taht this company isnt near the top of my shopping list
Scs (LON:SCS)
Hi rmillaree
The question I'm trying to answer is what happens if Suppliers ask for payment from SCS BEFORE customers pay SCS.
That Accounts Payable balance you highlighted would shrink overnight...as would the cash balance. Also, I don't think the Payables balance includes goods in transit, just the amounts owed for goods already received, so cash could reduce even further than we realise.
I honestly have no idea if this is a plausible scenario. Common sense tells me that it is as suppliers must be struggling with delayed payments right now.
If the SCS Investor Relations team had responded to my very simple question, then I would actually be more confident to take a position...but sadly they didn't, which leads to the next question - why did they not reply? Is it because I'm too small for them to bother responding to, or do they just not want to answer?
I'll email again and see if they respond.
Cheers
A
Scs (LON:SCS) is not a lot of this cash, for is for orders that have not been delivered, so customers may cancel and ask for a refund. With stock delays I can see why cash is higher than normal or am I missing something?
Scs (LON:SCS)
Hi Rustbucket
Cash for the company works as follows (apologies if you already know this):
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
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.
Scs (LON:SCS)
Abtan
The question I'm trying to answer is what happens if Suppliers ask for payment from SCS BEFORE customers pay SCS.
I don't really have any answers to your questions - with regard to my calcs that question matters not for me. I did my calcs on basis SCS would need to pay cash when goods are delivered to them - thats a reaosnable enough proxy for my purposes. If they needed to pay for working capital and that causes a deficit it would likely come out the other end reasonably soon. Note i have given no credit for inventories held so they have some safety net with the value of inventories.
In some resects there is no real answer to the question of excess cash - its simply the case the more the cash pot is depleted the more they morph into something like DFS which looked like a walking zombie waiting for the next recession last time i looked - note i would say they are ultra conservative at present so they are the opposite end of the spectrum from DFS.
Scs (LON:SCS)
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?
A
First class Fred. I admire your challenging him on their ambition. Can private investors typically attend AGMs?
definitely! Most companies will be delighted to see you. Small companies get very depressed when no-one shows up to AGMs, empty rooms don't give the right messages to the Board about the value of staying listed!
Of course they can.
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.
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.
Alan Charlton on last night's Mello (30/11) made some interesting points in his analysis of Scs (LON:SCS) the one that stuck in my mind was that the management doesn't have much skin in the game and their interests seem to lie with their remuneration and not the shareholders. I hold
Fred9566 re SCS. Many thanks for a very interesting and helpful comment. Much appreciated
Great work Mr. C
Surprised Sosander (LON:SOS) wasn't covered yesterday, perhaps you didn't have time. Hope you'll do so today,
Hi Trio,
Originally Paul hoped to pitch in with the Sosandar (LON:SOS) update but he's traveling around the country on a couple of personal engagements at the minute, so he didn't get the chance in the end. Hopefully we'll get time to revisit it today.
Sosandar (LON:SOS) is one of Paul’s holdings. Hopefully Paul will catch up with this very impressive RNS when he next contributes. Growth figures at all level look very impressive with the business moving into profit and positive cashflow. It’s good to see that they do well during lockdown (high street shops are shut so people buy online) and when shops are open. Selling through big retail chains must be a positive here. Disclosure - I bought back in on reading the H1 results.
Hi,
I'm in Manchester at present, for a family get-together, celebrating my nephew's Graduation, so am grateful for Jack & Roland for giving me some time off.
I looked at Sosandar (LON:SOS) (I hold) results last night, and don't really have a lot to add to a self-explanatory set of interim results. Key points -
Stunning revenue growth rate, which is still running at a hugely impressive +120% in the key peak trading Oct & Nov months - which were also profitable for the first time (there's hardly any difference between EBITDA and profits, so it's frustrating to see them quote EBITDA all the time - an own goal)
Strong gross margins, absorbing supply chain cost increases, and demonstrating really good pricing power, from a differentiated product
Singers has increased FY 3/2022 revenue forecast by 11%, and getting close to breakeven
Admin costs rose hugely, absorbing all the increased gross margin - this is because they ran the business on a shoestring the previous year
Cash position should be fine from now on, since the big cash-burning days are now over.
Valuation of c.£75m looks toppy if it were a value share, but it's a stellar growth share, so it could be seen as cheap, depends on your point of view.
My opinion - the business model is now proven, and I think the spectacular growth rate is telling us that something big is happening here. Establishing a new, distinctive fashion brand from scratch is a huge task, and nearly everyone who attempts it, fails. That SOS has achieved it, is very exciting in my opinion.
Impressive interim results from Redde Northgate (LON:REDD) I thought. The rental market benefiting from reduced supply of new vehicles, coupled with strong demand for vans.
Redde Northgate (LON:REDD)
Agreed very pleasing update , can’t really find any specific negatives here other than there is no specific upgrade to year end expectations - even then at least in line I suspect may see some brokers raising forecasts.
Main plus points
Debt refinacing on unbelievably good terms of 1.5 %
Some decent large long terms contracts supplied that should be great base to ensure core earnings are more secure.
Other key metrics all seem to be going well.
I was hoping debt may have materially reduced but facts are they are doing so well they need to be investing in working capital and capex - so looks like this spending is to support higher future revenue.
Don’t think I will be selling here anything below 500p at present, Wasn’t really planning on this being long term core holding but management really seem to be on the ball here which is great.
Redde Northgate (LON:REDD) Excellent results. On a statutory basis;
Rev +10%
EBIT +135%
PBT +177%
EPS +162%
Div +76%
Very pleasing and hopefully might put an end to the sideways drift/down that has been happening since September.
It is now well outside of SCVR, but was previously on the list for commentary so am hoping for a comment by Jack or Roland. I hold.
Agree these are stunning results from Redde Northgate (LON:REDD) which the management are underselling in my opinion - they say FY22 will be 'at least in line' with market PBT expectations of £119.4m but we are well over half way there on that target at £78.9m and I don't think this is a particularly seasonal business (happy to be corrected on that). So I expect FY22 will blow the lights out at this rate and it will be interesting to see any broker notes today!
At 422p this morning this is trading at just 11x existing EPS estimates. Surely that's now on single figures?! It's tempting to load up the truck on this one.
There are two key things driving the growth in these results today:
* Improved margins in both parts of the business. ROCE has increased to 12.5% which is higher than the combined business ROCE at any point since FY17 (as far as my notes go back). By my calculations operating margin is 14% which is double last year and much higher than at any point in the last few years. This is key because one of the key concerns about Redde Northgate (LON:REDD) is it had a declining operating margin and the company says today that the margin improvements in the rental business 'look sustainable' and ‘We remain confident that the underlying margin [in rental] will remain at around 15%.’ (in these results it is over 17%).
* Dramatically increased revenue in the accident & insurance side of the business which is because traffic and therefore accidents are increasing (unfortunately for those involved). In fact H2 will be even stronger than H1 here because as Redde Northgate (LON:REDD) point out further down the RNS 'EBIT for Redde has been increasing month-on-month as traffic normalises' <- providing of course there are no lockdowns with Omicron.
There are probably three things I am a bit cautious about in these results:
1. Revenue in the rental business Northgate is effectively flat on last year. That's a bit disappointing and might limit the long-term upside and their net increase in vehicles is relatively small. But perhaps lack of vehicle supply is enabling them to push up their margins while not being able to grow market share by very much? That might raise questions about how sustainable the margin increase is despite what management claims.
2. Vehicle sales revenues have fallen 29.2% due to not being able to buy as many new vehicles and due to one off large sales last year. Profits have increased in this quarter due to lack of supply of vehicles (as with car dealers) but that won't last forever.
3. Free cash flow was negative to fund more van purchases.
As a reminder to newcomers, Redde Northgate (LON:REDD) debt is mostly related to vehicle purchases which is why their debt has a very cheap interest rate.
I am very grateful to Roland who wrote a great article previously on Redde Northgate (LON:REDD) and who helped informed my research - I think Roland might have been a bit sceptical at the time due to increased risk and falling margins if I recall but the low share price last year tempted me in! That shows the benefit of DYOR while learning and listening to others. I would recommend people read it to learn about the history of this share.
Good morning, Jack. Your thoughts on the half year results published this morning by D4T4 (LON:D4T4) would be much appreciated. Thank you.