Small Cap Value Report (Wed 13 Oct 2021) - G4M, ANG, VTU, BRCK
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Good morning, it's Paul & Jack here, with the SCVR for Wednesday.
Agenda -
Paul's section:
Vertu Motors (LON:VTU) (I hold) - stellar H1 profits announced, and another upgrade for FY 02/2022. Car dealers are experiencing a profits bonanza, due to very high used car margins (driven by a shortage of supply). VTU is striking in that it has a particularly strong balance sheet, with NTAV now actually above the share price. Even allowing for profits next year more than halving, this share still looks cheap.
Jack's section:
Gear4music Holdings (LON:G4M) - solid results, perhaps better than the market might have feared in light of widely reported supply chain issues. Trading in line with expectations of FY22 revenue of £156.6m and PBT of £7.3m. Strong levels of inventory ahead of peak trading period. More detailed interims due out in November.
Angling Direct (LON:ANG) - another niche ecommerce operator (although this one is omni-channel and its physical store estate plays a key role). There are ongoing concerns over its pricing power and long term profit potential but trading is positive and ahead of expectations. As with G4M, Europe is proving tricky.
Brickability (LON:BRCK) - Revenue and adjusted EBITDA up strongly at this building materials supplier, which is unsurprising given recent reports regarding heightened demand. Cost pressures too, and driver shortages, so it's a dynamic situation but overall positive.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to cover 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.
Paul's section
Vertu Motors (LON:VTU)
(I hold)
56.7p (up 4%, at 09:59) - mkt cap £208m
Vertu Motors plc, the automotive retailer with a network of 154 sales and aftersales outlets across the UK and a sector leading online presence, announces its interim results for the six months ended 31 August 2021 ("the Period").
"Record results delivered above market expectations, dividends resumed"
It’s difficult to digest these numbers, they’re so ridiculously good. We already know that car dealers are seeing bizarre, unprecedented favourable market conditions, mainly due to used cars having dramatically gone up in price due to supply shortages. This has led to listed car dealerships reporting wave after wave of big profit upgrades.
The downside being that these conditions are obviously not going to last forever, so it should be seen as a short term bonanza, hence valuing companies in this sector on current year earnings is not valid, since a PER has to be applied to sustainable earnings, to make sense.
That said, a boom in profits, even if only short-term, does leave a permanent benefit on the balance sheet. The way double entry bookkeeping works is that net assets on the balance sheet usually rise or fall by the year’s profit after tax. VTU points out that its NTAV per share has risen from 50.2p to 61.5p in just the last 6 months. At 56.7p, the share price is now actually below NTAV, which doesn’t make sense to me - i.e. the shares are too low in my opinion. It also makes VTU in particular a sitting duck for a leveraged buyout, since the large property assets could easily be leveraged (e.g. sale & leaseback) and bank debt applied (it currently has £57.3m in net cash).
H1 (6 months to end Aug 2021) saw an astonishing adj PBT of £51.8m
Free cashflow is reported at £63.6m
H2 has started amazingly well, with a record month in Sept 2021, generating a trading profit of £20m (Sept is a seasonally key month, with the 6-monthly number plate change occurring, bunching sales into the month)
Employment costs are rising a lot, with annualised £12m increases expected. My only worry with that, is that a permanent rise in wages could be harmful once the inevitable hangover comes along after this boom period ends. There again, people need to be rewarded, otherwise they leave to join competitors, and who could begrudge the staff having a slice of the delicious pie that car dealers are currently enjoying?
Cautious outlook, with guidance up again to >£65m for FY 02/2022 (previous guidance £50-55m), which looks too cautious, so expect further upgrades in the coming months.
Share buybacks resuming.
Divis also resuming, with a modest 0.65p, but I think that’s probably low because companies don’t want to attract negative attention, paying generous divis whilst benefiting from taxpayer support, I’ve heard that explanation from a number of other companies, when talking to management.
Balance sheet is very strong. NAV is £315.1m. I deduct intangible assets (goodwill, etc) of £101.4m, giving NTAV of £213.7m. That’s above the market cap of £208m, a very unusual situation for a company with assets which are generating large profits, not impaired. Freehold property is very large here.
My opinion - how to value this share? As mentioned above, PER doesn’t make sense, due to this being probably a one-off bumper profits year. Normalising earnings is the approach Liberum & Zeus take in their research notes (both available today on Research Tree, many thanks for that).
Liberum raises forecast again for this year to 14.1p, normalising to 6.4p next year. I think we can put that on a PER of 10-12, and add a bit on top for the very strong balance sheet (effectively surplus assets). I get to 70-83p valuation per share. That compares favourably with the current price of 56.7p, and I’ve been fairly cautious in my assumptions there.
Hence this share looks good value, and should have further upside, even allowing for profits more than halving next year.
.
Jack’s section
Gear4music Holdings (LON:G4M)
Share price: 765.8p (+2.11%)
Shares in issue: 20,976,938
Market cap: £160.6m
(I hold)
Gear4Music is a fast-growing online retailer of musical instruments headquartered in York. It’s been in the Stockopedia Investment Club since the end of May (see Pitch here) but the share price has recently come under pressure, likely due to rising supply chain fears across the market.
The group operates from a head office in York and has distribution centres in York, Sweden, Germany, Ireland, and Spain. It also has showrooms in York, Sweden & Germany. It sells own-brand musical instruments and music equipment alongside premium third-party brands to customers in the UK, Europe and the Rest of the World.
G4M has spent a lot of time and money developing its own e-commerce platform, with multilingual, multicurrency websites delivering to over 190 countries, and is looking to take market share across Europe.
It’s hard to do what Gear4Music is doing. You need to be highly efficient and organised in order to be profitable and good. The group itself ran into trouble trying to balance these two things back in 2019 or so, at which point it was choosing expansion, internal development, and service over profitability. It responded very well to criticism, enacting several concrete gross margin improvement initiatives and profitability has since then improved strongly.
Now the company is in an interesting spot: an exceptional lockdown-impacted 2020 was a record year for the group but forms tough comps going forward. Meanwhile, supply chain issues and recent profit warnings from Asos (LON:ASC) and Boohoo (LON:BOO) have impacted sentiment.
Trading for the full-year in-line with consensus market expectations (current consensus market expectations for the year ending 31 March 2022 are revenue of £156.6 million, EBITDA of £14 million and profit before tax of £7.3 million.)
Highlights:
- UK sales level year-on-year at £36.7m; +48% on a two-year basis,
- European and Rest of the World (RoW) sales -16% to £28m; +14% on a 2Y basis,
- Total sales -8% to £64.7m; +31% on a 2Y basis,
- Gross margin of 28% (FY21 H1: 28.6%; FY20 H1: 25.2%),
- Gross profit -10% to £18.1m; +44.8% on a 2Y basis.
European sales down 16% due to ‘post-Brexit challenges’. G4M’s new distribution hubs in Spain and Ireland became operational in September 2021 and should go some way to addressing these challenges.
The group acquired AV Distribution on track to complete by December 2021. We might expect more acquisitions in the years ahead.
Encouragingly, G4M notes strong levels of inventory going into the peak trading period. That should partially mitigate supply chain concerns, although the current logjam could last some time and it is difficult to predict how the issue might evolve.
Conclusion
Sentiment has turned slightly on ecommerce stocks in recent weeks, with the lockdown boom subsiding, tough comps coming up, and reported increases in costs from multiple companies. Titans BooHoo and Asos have both disappointed the market.
Against that backdrop I view this update as quite positive for G4M, although more detail and commentary will be provided in the interim results in November to get a clearer sense of trading. Getting to the half year point in line with internal forecasts is a welcome result given the dynamic conditions investors and companies currently face.
The company has retained some of 2020’s exceptional performance. UK sales are steady and gross margins have held up. Investors might have reasonably expected the company to experience some pressure here in light of raw material price inflation and supply chain issues, combined with a return to physical shops.
It’s still well up on the levels experienced back in 2019 or so when the company had to initiate a range of margin improvement measures in order to resuscitate the share price.
The key point for me, in the short term, is the line referencing strong levels of inventory ahead of the group’s key trading period. Problems will likely persist beyond this point, so that’s not the end of the matter, but it’s clearly a positive rather than a negative.
There are post-Brexit challenges in Europe and RoW, although sales here are still up 14% on a two-year basis and the group now has two operational distribution hubs in Ireland and Spain.
AV remains an interesting purchase and paves the way for similar acquisitions in future, with scope for G4M to broaden its platform offering and leverage its proprietary ecommerce technology. It is aiming to launch AV.com in January 2022 after the Christmas trading peak.
Trading at roughly 1x trailing twelve month revenue, with a strong historic growth profile and a track record of market share gains across the UK and Europe, I believe G4M shares offer compelling value over the medium term. No investment is certain, however, and there’s no doubt conditions are difficult for many operators right now.
With market volatility increasing, it’s difficult to predict just what the share price will do in the short term.
Angling Direct (LON:ANG)
Share price: 68.36p (+6.8%)
Shares in issue: 77,267,304
Market cap: £52.8m
This is another listed specialist retailer with growing ecommerce operations - one with a similar level of revenue growth but that trades on a more modest valuation relative to sales than G4M.
Upon closer inspection it is a different animal to G4M though, operating a hybrid business model with an estate of physical stores that is an important piece of the business model. The reasoning behind its stores is intriguing.
Our colleagues are the face of Angling Direct to retail customers and are key to delivering an excellent service, both in store and online. They also play a key role in the angling community. We differentiate ourselves by providing expert help, trusted advice and inspiration for customers to get the most from their fishing.
Angling is probably not a huge market and Angling Direct has struggled on margin in the past - but I do wonder if there might be an opportunity here.
Continued strong progress in H1, upgrading guidance for full year… the Board is now of the view that pre IFRS-16 EBITDA for the year ending 31 January 2022 will be no less than £5.0m, inclusive of the expected costs associated with opening the Group's new European distribution centre and comfortably exceeding current market expectations.
Highlights:
- Revenue +19.5% to £38.4m; +44.8% on a two-year basis
- Online sales +3.2% to £18.5m (+47.6% 2Y) and retail store sales +40.1% to £19.9m (+42.3% 2Y),
- Gross profit +33.7% to £14.4m (+68.8% 2Y),
- Gross margin +390bps to 37.4% (+530bps 2Y),
- Pre-IFRS 16 EBITDA +111.6% to £4.4m (+488% 2Y),
- Profit before tax +174.2% to £3.7m (+914.4% 2Y),
- Basic earnings per share +83.2% to 3.7p (+625.5% 2Y),
- Operating cash flow of £5.8m and net cash down slightly from £21m to £19.6m.
As with Gear4Music, Angling has been on its own journey to prove to investors the profitability of its business model. The two-year comps show a significant improvement in this regard.
Digital investment continues and UK online conversion increased by 80bps to 6.3%. AD+, a priority delivery subscription service, was launched in March 2021 to build customer loyalty and now accounts for 16% of all UK online orders.
The group has also recently invested in its UK distribution centre ‘to protect [its] supply position relative to [the] wider market’.
The new CEO has deep retailing experience and there might be low-hanging fruit in the store estate after a period of rapid expansion.
The new category management model is helping to deliver stock at good prices ‘in a short supply market, supporting gross margin growth’. Similarly, a store transformation programme is improving average transaction value by 3.8% and like for like sales by 32.2% at the revamped stores.
The group says:
We have established a two-year Retail Transformation plan which is now well underway. The plan is focused on radically improving our store shopping environment through improved layouts and merchandising, promotional messaging and, crucially, colleague interaction focused on customer satisfaction.
There’s a healthy property pipeline for underserved catchments and two further stores should be open by year end. One new store was opened in the period (Redditch in February 2021, while one in Sittingbourne was re-sited and another in Hull re-fitted.
International - Sales via the three native language websites fell by 34.2%. These sales comprised less than 5% of group revenue but that’s still disappointing. G4M does also note a drop in Europe and RoW revenue, but to a lesser degree, and from a higher and more established base. Brexit and restrictions on the export of bait are cited as key reasons, with conversion reducing by 90bps to just 1.6% (down from 2.5%).
Lead-times to customers in Europe have started to improve as new customs and border practices slowly start to stabilise. We have now also partnered with one of Germany's leading bait manufacturers to supply direct to our customers via Angling Direct websites. The Board anticipates the new European fulfilment facility will, in the medium term, greatly facilitate trading and the scale of the Company's online opportunity in Mainland Europe.
Angling’s proposed European distribution centre is moving to its execution phase, with terms agreed on a 3,900 square metre facility in the Netherlands. This is one of its five key European markets. Considerable management resource has been focused on Angling’s aim to become Europe's first choice omni-channel destination in its market and this in-region fulfilment centre will be an important piece of the puzzle.
This new facility is expected to provide the company with European growth capacity to 2027, with the board anticipating that it will be earnings positive by 2025. That’s quite a long time. At least the associated costs will be funded from existing cash resources.
Higher margin own brand sales in the period grew by 10.1%, whilst its proportion of total sales slipped modestly by 40 bps to 5.2%. Growing this as a proportion of total sales would help create a fundamentally more profitable business.
Current Q3 own brand sales as a proportion of total sales have improved to 6.8% following a refresh of our promotional activity. New own brand SKUs and ranges have been developed which, along with new packaging, are due to be launched by summer 2022.
Outlook
Sales in Q3 are anticipated to decline relative to the unprecedented levels in Q3 in the prior year (post lock down 1). It is not yet clear the extent to which the Company will track sales levels during Q4 against the comparative period, which included the second lockdown (all stores closed November 2020) and the beginning of the third lockdown (all stores closed January 2021). Post period-end, we have not experienced any material impact from supply chain disruption and continue to hold good levels of stock in mitigation. As with other retailers, we are not immune to increased raw material and freight costs, however, these will be offset by our margin growth and we are well placed to continue mitigating any impact.
Conclusion
There’s an increasingly efficient and profitable niche omni-channel business here, with growth opportunities in the UK and across Europe. The competition primarily consists of single and multi-site lifestyle businesses that lack Angling’s scale and finances to invest across both online and in-store operations.
That strong balance sheet must also be a significant competitive advantage during this period of global supply chain disruption, although the group will suffer from increasing costs just as others will. AD might emerge from this period in a significantly strengthened position relative to the rest of the market, though.
It is leading the way in its niche, although this is probably a smaller niche than G4M. An example of this is the upcoming mobile app:
During the first half, the Company invested in the development of a mobile web App, believed to be the first of its kind in our sector in the UK. The App is now in the final stage of testing, with launch date scheduled pre-Christmas, and will provide our customers with further choice, convenience and inspiration on the move, as well as the opportunity for us to improve online marketing efficiency.
And the group’s hybrid business model gives it some balance: while online growth has moderated sharply, it’s doing a roaring trade in its physical stores.
There will be ongoing concerns over the fundamental profitability of Angling Direct’s operations, but the group has gone some way to improving margins. Gear4Music found itself in a similar position just a couple of years ago and things changed rapidly there.
If you strip out the £19m of net cash, that’s a pre-IFRS 16 enterprise value of about £33.8m on forecast FY22 revenue of £72.5m, so trading on less than 0.5x revenue once you adjust for cash. FY EBITDA is expected to be no less than £5m. In fact, it’s already £4.4m at the halfway stage. Just taking that £5m figure for now though, that would be an FY22 EV/EBITDA ratio of 6.8x, which is not demanding compared to other retailers with growing online operations.
Adjusted earnings per share forecasts are fairly unexciting at 2.8p for FY22 and FY23, however, but perhaps these are overly conservative given H1 22 basic EPS already comes in at 3.7p. Still, it does bring us back to the point that Angling still has to prove to the market that it is an attractively profitable proposition in the long term.
Brickability (LON:BRCK)
Share price: 104.5p (+2.96%)
Shares in issue: 298,254,548
Market cap: £311.7m
Brickability’s businesses are focussed around three core product areas; Bricks and Building Materials, Roofing Products and Services, and Heating, Plumbing and Joinery.
The group distributes and installs building materials from major UK and European manufacturing partners, providing product solutions to both private and commercial specifiers, contractors, developers and builders. In particular, it is a market leading supplier of facing bricks, blocks, rainscreen cladding systems, architectural masonry, paving, roof tiles and slates to the construction industry.
These all seem to be services in high demand at present, so I’m curious to see if this impression is confirmed in the update.
The group’s shares are comfortably above pre-Covid levels but, with a forecast PER of 12.2x and a forecast PEG of just 0.4x, there might still be value here given the buoyant conditions.
Trading update for the six-month period to 30 September 2021.
Highlights:
- Revenue +300% to c£223m, +54% on a like-for-like basis (and +31% over two years),
- Adjusted EBITDA up from £8m to £17m.
The UK housebuilding sector remains in good health following a strong post pandemic recovery, driven by changing demographics, significant pent up demand and assisted by government incentives.
Q1 2021 saw the UK's highest number of homes built in a single quarter for over 20 years.
This trend is reflected globally, contributing to globally inflated building materials prices in almost all sectors.
Taylor Maxwell was acquired in July and the integration is progressing well. Its timber division has delivered exceptional revenue and profitability since acquisition, as material shortages drove unprecedented price increases. Timber prices in recent weeks have since reduced from this peak but remain higher than last year.
The order book remains ‘extremely strong’ and Brickability is well placed to supply UK's housebuilders as demand is expected to continue to strengthen.
Outlook
Brickability expects the current healthy housebuilding market conditions to prevail in both the near and medium term. The Group remains cautiously optimistic about the second half whilst recognising that market supply chains are under pressure due to a shortage of HGV drivers, construction worker wage inflation and increases in materials prices. Whilst not immune to supply issues, the Group's McCann logistics business, acquired in December 2020, has and continues to give Brickability an advantage in transporting materials from Europe and the UK. Despite these pressures the Board expects performance in line with market expectations for the full year.
Conclusion
It’s a very unusual and dynamic time in the markets right now. Most companies are being buffeted by a variety of headwinds and tailwinds as we navigate this volatile post-lockdown readjustment period.
Take Brickability: the highest number of new homes built in 20 years in Q1, but with supply chain pressures, driver shortages, construction worker wage inflation, and increases in materials prices.
It’s hard to knock a 31% increase in two-year like for likes though so on balance this seems a positive update from a company that’s probably worth doing a little more work on given the conditions.
It’s acquisitive too. The pipeline here remains strong but I wonder if overpaying in an overheating market is now a risk. Brickability is busy integrating Taylor Maxwell and Leadcraft but also sees near term acquisitions in the renewable energy products area.
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66 comments
I like this coy (Brickability (LON:BRCK) )as it is a good "bucket and spade" operation and a useful bell weather indicator to judge how the construction industry is performing. When the management vibes start to dampen then it will be time to withdraw!
Angling Direct, I buy from them quite often. Their shops are not in prime areas, they don't need to be, anglers are happy to visit secondary shopping areas for their needs. Rents I expect are very low.
Staff are excellent, they are helpful but not pushy, they are all good anglers in their own right and happy to explain things in detail.
Online is fast and efficient, prices are good but as mentioned there is no pricing power. I can check prices on line and buy from the cheapest supplier. AD have low/free delivery which gives them a slight edge.
AD do on line videos regularly explaining fishing methods and how various items help. These are well done, popular and help sell product.
Just my 2 penn'orth.
Mobile Streams (LON:MOS) at the micro cap level we discussed a few weeks back at around 0.3p (now 0.64p) They have just released an RNS saying subscriber figures have passed 10,000 in just 2.5 months in Mexico (6 months ahead of plan). Expected revenues in that market are now well ahead of previously announced numbers and being recalibrated. Plus several new markets in advanced stages of launch. Starting to actually look pretty interesting for a change under the new management.
Hi davidjhill.
I agree, Mobile Streams (LON:MOS) is showing signs of life. I was in and out of these a few years ago when ex-CEO and principal shareholder Simon Buckingham was at the helm and they always seemed to be on the cusp of one “killer app” that would multi bag the share price overnight. I think Paul S. used to refer to them as his “fizz stock”. Things went very flat for a while with numerous problems in their key Argentinian market and then a failed attempt to make inroads in India. They’ve been issuing shares like confetti for a while to keep going - the share count is up ten fold in the last five years or - so massively dilutive unless you’ve bought more on the way down.
I probably should have bailed out earlier but buried them under the bed and forgot about them and then added a few earlier this year when the green shoots started showing through. Under new management since 2019, the business seems to be building a more solid platform with the expectation/hope of steady, recurring revenues. The partnership with Quanta Media in particular seems to be going well as the new subscriber numbers appear to attest. Still high risk but not without potential.
Gus.
yep definitely high risk! I bought at 0.25p a while back as it looked like a very low risk option given the market cap at the time. I wasn't a fan of Simon but new management appear to be doing a very good job. I hesitated to even post it on here as they have been such a basket case and only an £18m market cap even now, but the recent subscriber numbers tell me this is now interesting. Subscribers are momentum driven - the more you get the more of a snowball effect it becomes. Exceeding 10,000 in 2.5 months suggests numbers will explode from here. Would like to get a better grip on financials....... Users pay $1 p/w so at 50,000 subscribers (target is 95,000) that's an annual revenue of $2.6m in that market alone. I don't know how much of that goes to Mobile Streams (LON:MOS) which I'd like to understand better. But add in several new geographies and this product alone could be a bit of a company maker, though who knows with mobile streams past history :D
Positive update from Victoria (LON:VCP) today. Could have read across to much smaller and possibly better value £AIEA operating in the same sector (floor coverings)? Any views appreciated. Thanks
Airea (LON:AIEA) (I hold) re read across from Victoria (LON:VCP)
I've not read the update from vcp but I did read the James Halstead (LON:JHD) and Headlam (LON:HEAD) which might also bode well for Airea.
These days Airea is a focused carpet tile manufacturer. The problem is that Airea is tiny, at £12m Mcap and it's almost entirely dependent upon UK sales - now it's international sales have nosedived - any supply, energy cost increases or supply shortages could seriously impinge on profit recovery. I expect that's why the share price remains in the doldrums.
Having said that Airea is currently trading on TNAV of 0.69 which doesn't account for the £3.5m investment property on the balance sheet and presuned cash coming in - which makes it quite a value play. The problem with these tiny value plays is that they can remain cheap almost forever.
At the same time its on a modest ttm P/E of 13.2 and EV/EBITDA of 6 despite revenues not yet recovering from lockdowns and the profit would have been a lot higher if the bonkers UK sales growth had not been obscured by the run down in exports. They spent £1m on new equipment and designs during the lockdown. Despite all the concerns it could emerge in top gear. A clear path on recovery in revenue and margins is the outer for the value on this one. Otherwise it remains besieged by worry. And with good reason.
Don't expect any updates - Airea are notoriously economical with their communications.
Noted private investor David Newlands has been increasing his stake recently, now 8 or 9% from memory - and he has a 0.5% rolling spreadbet according to RNS annoucements.
Potential little gem of a business going forwards (takeover?) and sitting on a mountain of cash and assets. I bought some more this morning
cheers
Mark
Amazing profits at Vertu Motors (LON:VTU)
Will the market reward the share price? I may be way off but I think the minute prices start normalising, and taking into consideration increasing employment costs, the market will overact and drop it like a hot potato...but that could be way off yet
Would have liked to see them buy back a substantial amount of shares with the cash to lock in higher eps
I've had a target price of 60-70p based on EPS of 6.3p. My sell order was filled this morning just below 60p. May well kick myself but that's life.
Would have liked to see them buy back a substantial amount of shares with the cash to lock in higher eps
Personally, I would like to have seen them repay the money they took from HMG as other much less morally bankrupt companies have done. No sign of them doing that though is there?:
Reported operating expenses of £167.7m, increased by £16.1m compared to the six-month period ended 31 August 2019. This increase was partially offset by Government support of £5.6m and as a consequence the increase excluding this support was greater at £21.7m. Dealerships acquired in the period since 1 March 2019 contributed costs, excluding support, totalling £19.8m. Underlying Core Group expenses therefore grew slightly, by £1.9m when compared to H1 FY20.
The Group invested an additional £3.0m in television advertising in the Period as part of the strategy to grow awareness of the Group's three customer facing franchise automotive brands. In addition, variable pay and commission levels exceeded H1 FY20 levels by £4.0m as a result of the record profitability delivered.
So they took the CJRS money while at the same time spending £3m extra on TV advertising and gave the staff £4m in commission. In total, in the TTM period, they have taken over £32m in government money via the CJRS and business tax relief. I realise I'm unusual in these parts in finding this behaviour utterly disgusting and others feel this is totally fine, but sometimes you have to do the right thing rather than what is permitted. Although I probably shouldn't expect anything less from a bunch of used car salesmen.
I also found this comment odd:
Excellence of customer service is also vital to retention, with over 90% of all vehicles seen by the service departments receiving a vehicle health check ("VHC"), with the technician providing a video of the items requiring attention direct to the customer for their approval for any works required. The success of this VHC process is one of the reasons for a rise in the average invoice value to £278 (like-for-like increase of 13.9% compared to H1 FY20) for service and repair work.
So be very careful next time you take your car in for service at a Vertu Motors (LON:VTU) dealership. Even the technicians are video salesmen now!
All the best, Si
You are not alone. We investors should think like the business owners we are, demanding our companies and their representatives uphold the highest ethical standards. Otherwise we are no more than speculators.
You are not alone. We investors should think like the business owners we are, demanding our companies and their representatives uphold the highest ethical standards. Otherwise we are no more than speculators.
It's good to hear I'm not the only person that feels this behaviour is totally unacceptable, especially when the NHS has been struggling and nurses have had a derisory pay rise after all the stress and hard work of dealing with the pandemic. The £32m Vertu Motors (LON:VTU) have happily banked would go a long way to helping out. Crikey, that's probably enough to build a new health centre in some deprived area!
I have some more time on my hands in the coming months and so I am seriously considering bringing this immoral behaviour to a wider audience via social media. I already have a slam dunk of a Facebook slogan "Vertu has no Virtue" Perhaps I should suggest they use that as the strapline on their TV adverts??
All the best, Si
You raise a valid issue, Simoan. I am surprised they have not put out a statement as to when it will be repaid or why it will not be.
I have been very bullish on this company however this leaves a sour taste.
Asos (LON:ASC) Some chunky director buys just announced. Gives me confidence this has been way oversold. Surely a great buying opportunity with a medium term horizon
Any thoughts welcome on Marston's (LON:MARS) (I hold) interims with a potential read across to Revolution Bars (LON:RBG) (I also hold) ?
On the whole looks like a positive picture, trading ahead of 2019 LFL period recently, though still down overall.
Marston's (LON:MARS)
Any thoughts welcome on Marston's (LON:MARS) (I hold) interims with a potential read
I own marstons -they very much appear to be stuck in a rut though - having said that todays numbers were actually better than i was expecting with 25July -2 Oct being above the pre covid 2019 numbers on a LFL basis. So the update today is better than i feared it would be (in my experience recently pubs in general have not been over "chokka" other than the lucky few)- note they have benefited from low vat rate here and expenses will be well up on 2019 - so there is no hiding the fact they are waybehind where there were pre covid. Although they may have scored with the freebie 150 pubs although i would be surprised if they are contributing much if anything - and the crown brewing jewels have been half sold off to boot.
Best i can hope for here long term is that they can eak out some cash to get the debt down without running the estate down due to under investment- i only think the picture will look favourable with materially lower debt combined with less bad outlook reference distancing and peoples want ing to goto pub and cost inflation issues. They will be doing well to hit expected £59 mill profit ye Oct 2022. PE may be cheap but enterprise value is ridiculously expensive and huge debt leaves no room for any more covid type disasters without us being diluted to H and back.
Covid certainly has knocked this company for a couple of hundered million cashflow for sure just at the time when the prior investment in the estate should have started to bear fruit - doh.
Any thoughts on the Luceco (LON:LUCE) acquisition ?
For those interested in micro (I mean micro - £6m mkt cap.) caps with a potentially asymmetric risk/reward profile I find Falanx (FLX) intriguing. It's a cyber security stock which has been a consistent underachiever, but looks like it might have potential to finally turn this around having divested of its consulting business to focus on cyber security software solutions. Trading at c.1.5x sales net of cash (29% revenue growth in today's trading update) and EBITDA breakeven. With a recent loan (not cheap at 11% interest) and divestment (of £4.6m leaving it with £3m net cash) it looks adequately funded for a while. What I don't know is how good management are at capital allocation (some of the funds are for M&A) and why it hasn't really grown much previously in a hot sector. It does seem to have an interesting platform for growth now with its channel partners but don't know the sector to really have insight on how credible this is. If it works it could multiply in value by a large number, but it is still speculative. Interested to hear from anyone with sector/company/management insight
Vertu Motors (LON:VTU) profit after tax is actually outstanding, they really have had and incredible year. theres nothing really new to say here. Take note of:
"The Group delivered a trading profit of GBP20.0m in September. This result was ahead of the original budget and prior year levels. Despite sales volume performance being reduced by ongoing vehicle supply constraints which have been widely reported, the trading result was a record for a month in the Group's fifteen year history."
That's important because we know there are supply constraints of new cars due to the superconductor shortage. more people buying used cars means theres a high demand with no new supply.
Personally im all ears about the superconductor shortage. who knows when this will end? a large part of this is due to the demand for them in high end gaming PC's. If you try to order one (e.g geforce RTX 3070/80/90) there are still massive delays. My local store told me there would be better chance of him finding me a unicorn.
Morning andywillz94 - Semi conductor shortage - various products
I am getting quotes for a new kitchen and appliances. Quite a few Ovens are on 10+ week lead time due to "stock shortages". I have been advised that one particular brand gets its control panels from Brazil and they have had a double hit of past shortages and CV-19 labour shortages having ben particularly hard hit with the ongoing epidemic.
Example on one well known site - https://www.neff-home.com/uk/p...
My apologies to everyone, I didn't hear my alarm & must have sleep-snoozed it, so am running late today. On the case now, I'll look at Vertu Motors (LON:VTU) (I hold) first.
ANG interim results look excellent with earnings exceeding the whole of last year and the forecast for this year. Balance sheet is very strong with cash of £19.6m - roughly 35% of the market cap and they say they are not experiencing any supply chain disruption since the period end.
Investment in a European distribution centre should also lead to a step change in sales but will hold back earnings in H2 and next year.
Would appreciate your view Jack/Paul if you have the time
Thanks for the write up on Gear4music Holdings (LON:G4M) Jack.
Having taken the plunge and invested in the summer I've been eagerly awaiting this trading update which I read as positive. Accordingly, I've topped up my position this morning to my normal size and look forward to positive progress over the years ahead.
I was very pleased with today's update from Gear4music Holdings (LON:G4M) as it addressed my 2 main concerns. Firstly, whether the huge boost in trading last year would be a one-off. With both sales and margins keeping up with previous year I'm now pretty confident this was not a one-off and expect further strong growth from here. There was a dip in Europe but seems to be largely Brexit related and should be resolved.
The other concern was obviously the supply chain issues and again the company seem to be fully on top of this having increased their inventory. They may even be able to benefit from this if some of their peers are short of stock.
Steve what would you class as a 'normal size' holding ? I'm new to trading so still gathering valuable information and advice. Thanks
Yes that’s a good question and one I was thinking but you beat me to it. I suppose it’s a percentage of whatever your total portfolio is? Would welcome thoughts though.
I allocate 3% of my total portfolio to any new investment. This broadly imposes a cap of 30 companies at any time which is the most I feel is manageable but gives good diversification.
If having taken an initial stake the share price falls but I believe that the investment case remains intact, then I will buy more. If the investment case no longer holds , I will sell. In the case of Gear4music Holdings (LON:G4M) it appeared ok but I was waiting for today's announcement to confirm.
I know that others have much more sophisticated portfolio management and sizing rules and I continue to refine mine so further thoughts welcomed.
On diversification in general there seem to be four approaches:
1. Put your eggs in one basket - watch it very carefully (Warren Buffet)
2. Hold the maximum number of shares you have the time to monitor
3. Hold a concentrated portfolio to maximise divergence from a performance benchmark (i.e. maximise return on stock selection)
4. Take the mathematical approach of seeking to diversify away a large chunk of the stock specific risk.
I would argue Option 1 is for the full time pros who know their companies AND can afford to take a big hit without changing their lifestyle, or for the gambler who enjoys the ride.
Option 2 is for the keen amateur investor with a day job holding positions in a SIPP alongside a company pension, the enthusiastic private investor using an ISA etc alonside other savings.
Option 3 is for fund managers who need to market their fund and demonstrate they are not index huggers. By all means hold these funds (e.g. Fundsmith) but don't put all your money into just one of them! Hold a basket of them and mind the overlaps.
Option 4 is for those private investors who are "all-in" and rely on their portfolios to fund their livelihoods. It is not always possible to spot fraud, the unexpected happens, and the professional fund managers frequently get things embarrassingly wrong too. Diversify to protect yourself because you realise just how ignorant everyone is, and nobody can predict the future. The maths says you can diversify with as few as 20-25 holdings, but in practice you are looking at 50-70 stocks once you take into account sector concentrations and factor correlations. If you include liquidity risk because you hold small & mid-caps then it can be sensible to hold well over 100 positions. I will take some flak for saying this as it isn't fashionable, but in investment being fashionable doesn't work for long.
Of course you can cut corners with ETFs, investment trusts etc, at the expense of paying someone else to diversify for you. They make a lot of sense for overseas markets... just try dealing in Japanese equities or reclaiming withholding tax from some other markets.
In fixed income you have an asymmetry of return (upside is the coupon, downside is 100% wipeout if no recovery post default). Corporate bond portfolios should be 125+ holdings or even higher (HY/junk being slightly different).
It costs very little to diversify, and over-diversification never killed anyone.
Hi Monty Carlo.
I think that’s a very good summary of the different investment styles. I’m firmly in the fourth group having chosen not to be employed but not drawing a pension so living on portfolio income and capital. I’m also probably at the extreme end of the diversification spectrum having well over 250 individual shareholdings as well as a fair chunk held in ETFs, Investment Trusts and OEICs which I use to give me diversification outside of the U.K. and into other asset classes such as property and commodities. The costs of these pooled investments can be pretty low nowadays, as little as a few basis points per annum for some of the larger and more liquid funds/ETFs, which are little more than rounding errors in the scheme of things. Happy to be unfashionable (you should see my wardrobe) and with this level of diversification able to be reasonably sanguine when a company in the portfolio has the occasional brain f**t. With so many open positions I now find it less stressful trying to keep track of the portfolio than when I had a much smaller concentrated group of larger holdings where one good or bad piece of news could have a marked impact on the whole. Each to their own.
Gus.
Sadly I made the fatal error of correcting the spelling of "withholding tax" and Stocko have sent my comment to prison. I've since done the family supermarket run and it is still in purdah....
I'm at 178 holdings, including a batch of "shares" that are really fixed income proxies. Admittedly 5-10 or so holdings are waifs & strays where the recovery option value exceeds the dealing cost.
Arrghhh! Don’t you just hate it when that happens. I suspect you can’t be ar**ed to type it all in again which is a shame since it was well worth a read before it disappeared down that great Bic-biro black hole in the sky!
Gus.
I would report it to the helpdesk. There seems to be a few posts disappearing. I replied to one yesterday that disappeared and has only just come back, however the sequence is lost and if I click on "In reply to xxxx" it only shows an error message.
I did many hours ago.
Nobody home or they have technical issues.
The top automated suggestion is "cancelling my subscription"....
Is this what you are talking about?
https://www.stockopedia.com/co...
Morning All,
Any thoughts to share on Luceco (I hold) acquisition of DW Windsor Group which seems like a good fit? Thanks
Hi Paul & Jack
Might you take a look at Avon Protection (LON:AVON) ? It's just about in SCVR report range, Mkt cap £575m. Paul looked at in the Aug 16th 2021 SCVR summarising it then as a mild profit warning. It's SP then was 2132p.
It's share price is at the level it was in Nov 2019, at 1794p today (-15.8% lower than the Aug 16th SCVR coverage).
Stocko stats are quite good for quality (Q87), not good for momentum (M4) and value (V27). PE(f) 18.6, PEG(f) 0.4, EPS Growth (f) 77.7% and Dividend Yield (f) 2.28%.
A slightly mixed update today. From the RNS ...
Avon has continued to see good commercial momentum in the second half of FY21, with order intake for the year of c.$280 million. This represents total year-on-year order growth of 34% and growth of 15% excluding Team Wendy. As a result, the Group has carried a strong closing order book of $141 million into the new financial year ("FY22"), up 39 % on 30 September 2020. This momentum underpins confidence in the Group's growth expectations for FY22.
But a (possibly guarded) earnings/profit concerns?
As expected, we have seen revenue growth in our First Responder business and Military respiratory portfolio, offset by declines in Military ballistic revenue due to the previously announced delays. Overall, Military revenue is expected to decline by 3% to $149 million with respiratory revenue growth of 10% being offset by a 31% decline in Military ballistic revenues. First Responder revenues are expected to have increased by 2% to $61 million, against a strong comparator in 2020, driven by very encouraging growth in our ballistic protection portfolio.
Might these be temporary supply chain issues rather than structural concerns?
RNS is here for more details
https://www.investegate.co.uk/...
Regards
Howard
I hold
I would be interested in your comments on Sanderson Design (LON:SDG) . As with several other companies, the market seems to have reacted badly to an in-line trading update.
It seems its back to the norm anything other than stella is being punished, we are back to reality it seems
Hi John,
My reading was that it was a good update, a bit better than steady-as-(he/she/they/them)-goes, beats 2019 on all metrics, and it was good to see a return to an interim dividend, which is comfortably higher than the interim dividend paid in 2019. Net cash is also up quite a lot at GBP15m, as part of a quickly increasing trend. It will be interesting to see what they plan for the increasing cash.
The reason why the market has marked it down is likely to be the outlook:
"Since the half year, manufacturing sales and licensing income remained robust and offset a slight softening in brand sales. Our key Autumn selling weeks in October and November have just started and we remain confident of meeting the Board's expectations for the full year."
This sounds cautious, and maybe the market was expecting more. Personally I think it's the right tone; then either SDG comes in as promised (assuming no profit warning), or hopefully you can say you've beat expectations all ends up. The downside is that this wording is setting the scene for a profit warning. Who knows.
But given the majority of other share prices recently, this is still holding up well.
Thanks
Chris
Good morning john2, mikebianchi, and Chrisfarrell21,
Thanks for the comments on Sanderson Design (LON:SDG) (I hold).
It's a solid long-term holding of mine, so I'll be looking at this one later. I've been very impressed indeed with the progress under new CEO, she's worked wonders by simplifying the business, stripping out costs, etc., making it much more profitable. It's an interesting case where there was a fantastic business lurking underneath a lot of inefficiency, and processes that had always been done that way, but were ripe for modernising (e.g. salespeople on the road, when launching products digitally was a better & cheaper way of selling, now implemented).
I'll get a section up here about SDG later this morning.
Regards, Paul.
The Vertu Motors (LON:VTU) (I hold) results make me wonder whether there are other businesses that, perhaps unexpectedly, actually benefit from supply chain shortages. Perhaps lower margin businesses specialising in one-off purchases where there may be more scope to raise prices? Bringing today's news together I wonder if Gear4music Holdings (LON:G4M) might fall in that camp because people don't buy a new guitar each week and we saw how in the first lockdown Gear4music Holdings (LON:G4M) managed to increase its margins. Anyone have other ideas?
The freely available Zeus note on Vertu Motors (LON:VTU) is worth a read. Three things stuck out at me:
Zeus upgrade full year EPS to 13.6p and maintain 6.2p for FY23.
My thoughts exactly, if there is a shortage of say guitars, then Gear4music Holdings (LON:G4M) should be in a good position to keep prices high. I suppose slightly different from the motor dealers where used car prices can fluctuate quite a lot, whereas I'd imagine musical instruments would tend to be more of a fixed price, so probably not in a position to raise prices because of shortages?
Hi Patrick
Is it possible to post a link to the Zeus note for Vertu Motors (LON:VTU) (I hold). A google search by me only generates an archive which requires a log in to access.
I got the Vertu Motors (LON:VTU) note via Research Tree but it is free on there, you don't need a paid subscription.
Morning Jack.
Good balanced write up on Gear4music Holdings (LON:G4M) . My initial reaction was a bit of disappointment, not least the performance in Europe with a dip in YoY sales albeit against tough comparators. However the company seems on top of the issue with the new distribution centres (although I’ll never understand why logistically it makes sense to put a European distribution centre on an island off the north west coast of another island outside its primary target market!), margins are holding up well and the build up in inventory is reassuring ahead of peak sales season. Positive market reaction this morning seems to suggest that after the recent 20% sell off we’ve moved on from expecting stellar growth every year to being satisfied with consolidation and a bit more of a steady state performance. Might be time to consider topping up the holdings for this and a few other online retailers that dare not be mentioned that have gone off the boil recently.
Gus.
The interims were exactly in line with the trading updates so shouldn't have been any disappointment. The recent share price performance was on low volume and just down to retail panic selling that supply chains and inflation was going to hit them, which of course it hasn't. Trading on less than 1* revenue and sub 20 this years PE it's just a very well run company with plenty of growth and consolidator opportunity. AV adds an extra interesting dimension.
Gear4Music Holdings (LON: G4M)
Question - If the vast majority of G4M product is imported into Europe I wonder why Brexit agro is such a problem, its obviously not such a problem importing into the EU, curious is it not. Hopefully the update will put a floor under the recently pulverised SP.
because the distribution hubs prior to September were in the UK
"Because the distribution hubs prior to September were in the UK"
Not true. Gear4Music have had distribution hubs in Sweden and Germany for several years.
yes - but wasn't the issue that they were still having to use the UK distribution hubs for certain parts of Europe hence the Spain and Ireland hub expansion to ensure they had geographic footprint across Europe that both minimised time to deliver to customer and any cross border issues. At least that's what I took away from the final results presentation.
davidjhill -
Please tell us which company you are talking about (see Explanatory notes in header). There are 6 different ways of reading comments - if not reading threaded it is tortuous to find out which post you are replying to.
Agree on Gear4music Holdings (LON:G4M) and as I said yesterday well run companies offer corporate resilience. In this case they have opened the European hub and increased stock levels and as a consequence can perform against a good demand backdrop without incurring any significant margin pressure.
Actually looks to me like they are ahead of expectations. I suspect they have built in some margin of comfort for the Christmas period. With £30m+ of inventory I'm not particularly concerned about supply chains causing any constraints on trading in the peak period.
I am still looking for 40p+ and they look compelling value given the medium term growth profile.
Made Tech (LON:MTEC) has announced a relatively large contract for £7m with the DVLA over the next 2 years. Given last year's turnover was £13.3m, I'm surprised to note the share price has hardly moved, given the contract adds 25% to turnover.
Solid results from Shoe Zone (LON:SHOE) this morning, great growth in online and once again turning a profit at £6.5m which is commendable given that the stores were shut for 4 months. Margin has taken a hit and the increase in container prices is flagged (no surprise). As such the market seems to be punishing shares effected so could take a hammering today, however it’s a solid no thrills profitable business. Management hopeful of reinstating the divided in due course. Paul hoping you can run your eye over the results. Thanks
Not quite sure what the market was expecting but the Shoe Zone (LON:SHOE) share price is up over 20% in early trading. Possibly the strong online growth performance or a sigh of relief that the last lockdown effect wasn’t as bad as feared. Not complaining but seems a bit of an over enthusiastic response ….
Gus.
Been watching Shoe Zone (LON:SHOE) recently, it's definitely gone up a bit, but trading around the spread is really flattering the rise. It was 70p to buy yesterday and right now its 74p to sell. 20-Sept 65/70, yesterday 63/70, sometimes it drops to 69p. Probably do a bit better than those actual numbers but the spread has kept me out so far unfortunately.
Surprisingly good TU from Shoe Zone (LON:SHOE) this morning. (I hold)
Star of the show is the massive increase in online revenue almost double last year and treble 2019. Excluding online shop sales look to have been good too with sales of £2.458m per open week compared with £2.519 and £2.911 in the last full year. This also conceals that only 410 shops were open compared with 460. This equates to a 10% increase in rev per shop week exc online. Good profits, a resumption of store activity, and resuming dividends earlier than expected makes this a £1 target share by end of next H1
Ever hopeful
Maybe a thought from Paul as he has been positive in the past
Steve
Thanks for analysis Steve, the weekly sales comparison is really encouraging. I can see this share reaching the pre pandemic highs and beyond if online continues the meteoric rise.
For me the Shoe Zone (LON:SHOE) result is as good as it gets. They've still had cheap stock during the period, and also business rates relief.
Digging through my notes, it looks like increased shipping costs will start to add c£7-10m extra costs a year.
In addition, my estimate is they business rates will run about £7m as well a year. . They have not disclosed, but given they ranted about it last autumn in an RNS, it probably is sizeable.
So taking those together, the PBT might turn to a LBT next year, unless there's huge revenue growth. But they're not expecting a big store portfolio growth nor Los of noise of investing more in online or other channels.
i guess the flip side is that Shoe Zone (LON:SHOE) has a notoriously short average lease length so there are potentially good savings to be made on rents over the next couple of years. I don't know enough to be able to compare the benefit with the business rates disbenefit though.
I am interested in how much government support schemes have benefited the company in returning to profitability. The PBT looks a bit too good to be true in the context of the revenue falls and a slightly reduced margin.
Some further upgrades on Capital (LON:CAPD) which look to have been driven by the contract at Sukari performing ahead of expectations. Revenue guidance increased by around 10%
May be worth a closer look.
Vertu Motors (LON:VTU) results this morning are superb. Record results with profit before tax of £51.8m due to the favourable used vehicle market conditions and outperforming market trends. Supply issues are driving margins. For the full year, they guide ahead of expectations with adjusted profit before tax of no less than £65m (previously £50-55m). Here is the H1 presentation with full details on all business areas and the strategy going forward plus a link to the slide deck. Well worth a listen. Video & podcast.
Separately, the Stockopedia/PIWORLD StockSlam takes place on 27th October at 6pm. This event ony happens because of the 'Slammers'. No Slammers, no event. Please get in touch here if you'd like to pitch a stock (we would be very grateful). If you'd like to register to attend, please do so here.
Vertu Motors (LON:VTU) (I hold) results make me pleased I haven't had to buy a car recently. Could be quite a shock to margins when supply chains do come back.
I put off ordering a new car in March thinking I would wait for things to get back to normal. When I looked again in September the response was “That was a good idea in March but unfortunately things have only got more difficult since.”
Edit. I bought Vertu Motors (LON:VTU), Marshall Motor Holdings (LON:MMH), and Lookers (LON:LOOK) Still driving the old car.
There's probably quite a lot of pent up demand. My car past its 200k KM mark this weekend but am holding off buying a new one until the supply chain issues resolve and I figure out what the best alternative to the old Diesel/Petrol options are.
Mine has just gone past 150k miles and I decided to order a new one earlier this week. Partly as I saw interest rates on PCP increasing and secondly as delivery times don't look to be getting any shorter - 30 weeks+ for the model I ordered.
I therefore felt it prudent to get in now as I can only see further price rises and increased PCP costs for at least another year+ until this "transitional" inflation passes.
Unfortunately I could't risk waiting a further 9-12 months to see how things look as I do a lot of miles.
I did consider buying 2nd hand but the cost differential between a 2nd hand 1-2 year old car and a 15-20% broker discount on new was tiny. 2nd hand costs have gone up and no longer makes sense in my view IF you can go for a model with a 15-20% discount.