Small Cap Value Report (Wed 18 March 2020) - CV19 Estimates, SOS, JDG, ALT, RBG, AIR, ANP, CNCT, SIS
Good morning!
Today we have updates from:
- Sosandar (LON:SOS)
- Judges Scientific (LON:JDG)
- Altitude (LON:ALT)
- Revolution Bars (LON:RBG)
- Air Partner (LON:AIR)
- Anpario (LON:ANP)
- Connect (LON:CNCT)
- Science in Sport (LON:SIS)
Cheers,
Graham
These are shocking times. Does it remind you all of 2008-2009, when a general catastrophe affected nearly every company?
We continue to see unscheduled updates from all sorts of companies, to tell us how the Coronavirus situation is affecting them. Few, if any, parts of the economy are left untouched.
CV19 Estimates
Let me preface this analysis by saying that every death is a tragedy. I want to look at some of the numbers.
Yesterday, the Government's Chief Scientific Adviser said the "best-case scenario" was for 20,000 people in the UK to lose their lives to the new coronavirus. It would kill two or three times as many people as the seasonal flu.
For context, 540,000 people were recorded to have died in England and Wales in 2018. So there are probably around 600,000 deaths across the UK as a whole every year, including Scotland and Northern Ireland.
In this "best-case scenario", therefore, the virus would increase the total number of deaths in a year by only around 3.3% (excluding the double-counting effect, where another underlying illness would have caused death instead).
More bearish projections were issued by academics from Imperial College. Assuming the virus is allowed to spread rapidly, they predicted that 250,000 people could lose their lives, i.e. about half the number of total deaths per year from all other causes.
That scenario would involve a "single, relatively short epidemic". I guess the rapid spread of the disease would bring about a faster immune response from the population.
However, I'm not sure if that 250,000 number is possible. The Chief Scientific Adviser appeared to agree with Jeremy Hunt that there could be roughly 1,000 cases for every 1 death.
If that's true, then the mortality rate is only around 0.1%. So given the total population size, the maximum number of deaths in the UK is around 66,000 - assuming that it infects everybody.
If around 70% of the population was infected - still a very large estimate - then the number of additional deaths would be more like 46,000. This is 7.5% - 8% of the average number of deaths in the UK per year (again, excluding the double-counting effect).
I hope these estimates help to put some context on the overall threat posed to life.
Investing psychology
The economic threat is very different, since preventative measures can ruin businesses and jobs while preserving life. There is a clear tradeoff between preventing the rapid spread of this disease, and allowing businesses to function in a normal way.
There are many unknowns - including the severity and duration of the government's response to the crisis - and this is why shares are so cheap. Nobody knows what is about to happen, and it's extremely unsettling.
As I said on Twitter the other day, you can take comfort in the knowledge that the businesses you own shares in are still there, even if their share prices aren't in the same place. Unless they become insolvent or need fresh equity (and it's definitely worth checking if that is the case), these businesses will still be there tomorrow, and next year. Their profitability may in time recover. I continue to expect normal life to return, but I don't know if it will take three months or a year.
It's an impossible situation in which to make short-term forecasts but I would definitely prefer to be a buyer than a seller, if I can find robust companies in this environment.
Sosandar (LON:SOS)
- Share price: 7.18p (-36%)
- No. of shares: 192 million
- Market cap: £14 million
This one was at 15p at the start of the month.
It's a serious profit warning:
- "challenging and volatility trading environment".
- sales "substantially weaker than expected", margins impacted too.
FY March 2020 revenue will be £9 - £9.3 million (consensus was previously £10 million), net loss £6.5 - £6.8 million (consensus was previously £5.8 million).
There is less than a month's impact from the Coronavirus situation in these figures.
I wonder what the monthly loss might be?
It looks probable to me that loss in March is well over £1 million. This based on the fact that the company was loss-making anyway, and is going to miss its profit forecast by £700k - £1 million (unless those consensus numbers are outdated).
It reports cash of over £5 million, which means that it shouldn't immediately go bust or need or another fundraising straight away.
But yet another fundraising is surely inevitable, later this year.
The business has relatively low levels of committed expenditure and, as a dynamic business, management has decided it is appropriate to focus on cash preservation during this challenging period. The Company will therefore substantially reduce its planned marketing spend in order to focus on repeat orders from the Group's existing customer base rather than new customer acquisition in the short to medium term. This, alongside other cost saving measures available to the Company, will help preserve cash for when market conditions improve.
Without a big marketing spend, and thanks to the impact of the virus, sequential growth could be set to collapse. The company will have to rely on the repeat orders which it has claimed will vindicate its business model.
But it wasn't expecting to have to rely on them so suddenly, and in an economic environment where people aren't leaving their house.
Supply disruption - Sosandar says it "is not experiencing any significant disruption to its manufacturing". Implying that there is some disruption, but it's not huge at this stage.
Demand is a much bigger problem than supply at this moment in time.
My view
Readers will know that I've always been unsure as to whether or when Sosandar was going to reach "escape velocity" and be able to fund itself, instead of regularly going back to the market for more funds.
And the reason I've always highlighted this is as very important is that you can't predict on what terms future fundraisings might be arranged. Getting diluted is no fun at all. It can wreck the value of your investment in a business.
And barring a miracle, I think Sosandar is going to need more funds again this year.
It had net cash of £4.2 million at the end of December.
It then raised £5 million (gross) in mid-February. Let's call it £4.5 million in net proceeds. So the total funding of old cash and new cash is £8.7 million.
If the cash balance at the end of March is just over £5 million, simple arithmetic suggests that around £3.5 million was burned in the last three months.
Not buying any more TV ads will help a lot, but if Sosandar doesn't make it to profitability very soon (and there is little reason to suppose that it will), then I don't see how its £5 million cash balance is going to last long.
With more fundraisings on the horizon and a questionable route to profitability, I'm really unsure as to whether this company's equity has any value.
Judges Scientific (LON:JDG)
- Share price: 3225p (-5.1%)
- No. of shares: 6.2 million
- Market cap: £200 million
Lovely results from Judges. It's a great example of a quality company which is currently "on sale".
- 5.6% organic revenue growth
- operating profit up 32% to £14.1 million
- dividend up 25%, still covered 4.5 times by adjusted earnings (this approach can be defended on the basis that the main adjusting item is the amortisation of intangible assets)
There was only one small acquisition in the year: the £2.3 million purchase of Moorfield Nanotechnology.
One of the best arguments against Judges is that it has grown too big, and won't be able to make purchases that move the needle in future. That thesis certainly held true in 2019.
And in November, the company announced its first special dividend.
Judges is becoming a cash cow - a big dividend payer - rather than a compounding machine.
Perhaps the current crisis will through up a few buying opportunities, so that Judges can invest instead of paying out large dividends?
Outlook is robust:
It is impossible, at this stage, to quantify any impact on current year trading as the duration of the pandemic is unpredictable. We are currently in a strong financial position with high cash balances and low gearing together with a robust order book, however, the only guidance your Board can provide on trading performance is that the effect will be limited if the outbreak lasts only a further two months and will have a progressively growing and more significant impact thereafter.
My view
Judges is one of the very few companies which is disciplined enough to focus on its ROIC (Return on Invested Capital), though it calls it the ROTIC.
It calculates its ROTIC at 31.4% in 2020 - superb, and better than the 27.6% achieved in 2018.
I don't know if Judges will be able to make needle-moving acquisitions but I do trust that it will act responsibly and will measure its performance in an appropriate way. If it can't make good acquisitions, I expect that it will continue to do the right thing and, to the greatest extent possible, will give its profits back to shareholders.
This share is definitely worth researching in more detail.
Altitude (LON:ALT)
- Share price: 18p (-16%)
- No. of shares: 69 million
- Market cap: £12 million
Proposed disposal of AdProducts
Altitude is an unusual company, mostly active in the US, where it is developing a marketplace for promotional products. Here's the website seen by customers.
This RNS sees the company parting ways with its UK-based subsidiary and one of its UK-based directors, whose wife is making the purchase.
The UK-based subsidiary was making very little money, if any, and is being sold for up to £0.8 million.
There is a trading update too:
- Altitude withdraws guidance for the next financial year
- too early to establish the impact of the virus ontrading
My view - conceptually, a marketplace for promotional products sounds like a wonderful business idea. My main difficulty with Altitude is that it's a US micro-cap, listed in the UK, and it's hard to do due diligence on it from over here. So I'll probably stay away. Those who take the plunge might yet be rewarded.
Revolution Bars (LON:RBG)
- Share price: 20.5p (-16%)
- No. of shares: 50 million
- Market cap: £10 million
RBG shares had already been decimated before today's announcement. They dropped all the way from 60p-70p down to 25p, as of last night.
Today, we have confirmation that the situation has rapidly deteriorated. Trading will be "very challenging for the foreseeable future". The UK Government has advised the public to stay away from bars, so this is not really a surprise.
Pubs can go belly-up very quickly under their fixed costs, and RBG isn't starting from the greatest position with net debt of £10.5 million (now bigger than the value of its equity).
To me, this sentence suggests a refinancing is already being considered:
The Board continues to monitor the Group's funding requirements closely and is proactively exploring all the options available.
Actions being taken to preserve cash:
- reduction in payroll costs
- reduced opening hours ("reduction of unprofitable trading sessions")
- reduction in other variable costs
- suspension of rent and deferrable of business rates
- requests to defer PAYE and VAT payments
I've highlighted the last two because they strike me as last-resort measures which are typically used by companies in financial distress.
If the taxman isn't getting paid, then all the other stakeholders need to worry, too.
RBG says:
...we hope that there will be further measures in the coming days to provide assistance with payroll entitlements to gain surety for our employees, amongst other things.
Can anyone translate this? Is there a question mark over employees getting paid?
CEO comment:
Whilst we face a very challenging period in the current financial year, we are determined to make the right choices for the Group, employees, shareholders and all other stakeholders.
My view
The reference to other stakeholders is what you hear from a company whose creditors are unsure about their position. Landlords, the bank and the tax man will try to take what they are owed from RBG and I see very little left for existing shareholders.
Unless business goes back to normal very soon, a major refinancing will be needed to keep this afloat.
Air Partner (LON:AIR)
- Share price: 18.83p (-33%)
- No. of shares: 53.5 million
- Market cap: £10 million
Air Partner Statement - COVID19 Update
Commiserations to anyone holding this through its rapid sell-off.
The share price more than halved over the past week, in anticipation of this update.
Key points:
- guidance withdrawn for this year (FY January 2021)
- "costs are being tightly managed to preserve cash and to maintain sufficient working capital"
- no more dividends for the time being
The prospective yield had exploded to 21% - the market correctly forecast that this dividend would have to go.
AIR's charter flights business is experiencing lots of cancellations and delayed orders. This "could be mitigated" by an increase in evacuation and aid work.
The private jets business (which provides smaller aircraft) is still strong in the US, but the UK & Europe are "severely impacted" by the virus.
Freight has also temporarily slowed.
My view
AIR made a £10 million acquisition in December, which in hindsight looks poorly-timed. The acquired company provides aviation security and training.
£8 million was paid upfront, nearly all of which was in the form of cash rather than share issuance.
Prior to that, in July 2019, gross cash was £9.8 million and headroom on its Natwest borrowing facility was £3.5 million.
So total cash plus headroom on the bank facility in July was £9.8 + £3.5 = £13 million.
Most of that was spent in December on the acquisition.
AIR hasn't expressed any regrets about the purchase, and to the contrary says today that the acquired company is "proving its strategic rationale far earlier than we could ever have expected".
But I think the company needs to tighten its belt now, to work its way back towards a more comfortable financial position.
As noted in today's RNS, the company "owns no aircraft and does not operate as an airline". It provides aviation services. It should be able to manage its costs more easily than an airline - and we are about to find out if it can.
Running out of time, so a few snippets to finish off.
Anpario (LON:ANP)
- Share price: 230p (+2%)
- No. of shares: 23 million
- Market cap: £53 million
Anpario plc (AIM:ANP), the international producer and distributor of natural animal feed additives for animal health, nutrition and biosecurity is pleased to announce its full year results for the twelve months to 31 December 2019.
This niche business has put together a decent track record of profitability over the past decade.
For FY Dec 2019, it reports a 3% increase in revenue. PBT declined slightly to £4.4 million, but this is after a £0.6 million hit from foreign exchange movements. The underlying performance seems fine.
Let's skip to the outlook statement:
There may be some disruptions to shipping around the world but as most of our raw material supplies come from Europe, we expect to be able to fulfil orders effectively. With governmental financial support offered to the agriculture industry to ensure continuity of food supplies, Anpario is well positioned to take full advantage of the situation during the recovery period from Covid-19 and beyond... While we have not yet experienced any material impact on our business, we continue to monitor the situation closely.
This is pretty good evidence that panic buying of meats was unnecessary. The agricultural industry is not directly affected by the crisis - and governments agree that anti-virus measures which would reduce the production of food are a terrible idea.
I can't see any major problems here. Anpario is debt free and had cash at year-end of £14 million.
Connect (LON:CNCT)
- Share price: 14.15p (+2.5%)
- No. of shares: 248 million
- Market cap: £35 million
Well done to this newspaper distributor/logistics group for issuing a very clear trading update, and quantifying the impact of recent developments.
Trading is "relatively robust". Smiths News and Tuffnells are in line with expectations.
Euro 2020 cancellation - without football magazines and trading cards, profit in H2 will be hit by £1 - £1.5 million.
Travel business - expectations are now for DMD to be hit by around £1 million, for a breakeven result.
Conclusion - adjusted pre-tax profits for the group as a whole will reduce by £2 - £2.5 million.
My view
The only thing we are missing in the RNS is a statement of what the prior expectations were.
As far as I can tell, the previous forecast for adjusted PBT was £23 million.
You have to factor in net debt of £74 million, too (as of August 2019).
CNCT is still recovering from a failed acquisition strategy but its shares will turn out to be absurdly cheap at the current level if it can put in a few good years and pay off its debts. Not for the faint-hearted.
Science in Sport (LON:SIS)
- Share price: 33p (+1.5%)
- No. of shares: 123 million
- Market cap: £40.5 million
SIS reports a small loss for FY 2019 that is in line with expectations.
So far in 2020, trading continues to be in line.
Last year, SIS acquired a profitable company, PhD Nutrition, and the addition of this business definitely appears to be helping.
Outlook:
While we are seeing sharply reduced revenue in Italy, China revenues have recovered in March and we have received strong forward orders. We are working with key customers to ensure their inventory protects the next weeks of consumer demand.
Preparations for Covid-19 related disruption have been in place for some weeks...
Is this a glimmer of hope? If Chinese revenues are already recovering, does that mean Europe can recover soon, too?
SIS is forecast to reach breakeven this year, and then to make its first profit, after many years of waiting, in 2021. This has been a long time coming and is long overdue.
Calling it a wrap there for the day.
Take care of yourselves, especially your mental health. These are trying times for everyone, and it's a privilege to be able to invest in the first place.
Cheers
Graham
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157 comments
Hi Graham, does yesterday's M&A announcement re. Tuffnells make CNCT more appealing to you?
Let's play a quick game. Everything else is red in my portfolio (currently down 19.5% ytd) but I hold one share that is up over 25%. Anyone care to name it?
Give up? Answer: https://seekingalpha.com/symbol/GILD
Let's play a quick game. Everything else is red in my portfolio (currently down 19.5% ytd) but I hold one share that is up over 25%. Anyone care to name it?
All the best, Si
Team17 (LON:TM17)?
timarr
Team17 (LON:TM17)?
timarr
Nope! I'll give you a clue; it's US listed. Now up only 20% ytd. It's been a dog sitting in my portfolio for several years. Every dog has its day it would seem.
All the best, Si
I think you missed out EMIS in your report today. It is in the right sector undoubtedly, and with lots of cash, 80% recurring revenue, NHS Digital opportunities and control of UK pharmacy software - a UK company worth some comment.
Graham, really appreciated your comments on Sosandar (LON:SOS), Revolution Bars (LON:RBG), Judges Scientific (LON:JDG) amongst others. You correctly predicted previously Sosandar (LON:SOS) would need to raise funds and they did!
Some interesting late news for you:
Dow closes below 20,000.
Oil falls to an 18-year low. "Dismal oil demand outlook, Saudi-Russian price war lead to 'atomic-bomb'-like environment for oil".
"At no time in human history has silver been this cheap relative to gold" (video). The narrator explains that in order to make margin calls on stocks, people have sold precious metals, preferring to sell silver ahead of gold.
Sleep tight.
A couple of interesting snippets which may have gone unnoticed:
1. The Chinese stock market (Shanghai Composite) is still only down 13% since its January high-point, despite being the epicentre of the outbreak.
Japanese, European and US indices are down 30%-plus. My only conclusion is the Chinese government are currently embarking on massive state intervention to prop up their equity markets.
2. SuperStocks are currently the worst performing basket, over the past 1 month and 3 months (and by quite a decent margin over the 1 month period):
Interesting figures, I was just looking at them earlier today and it did look like the 90-100 was worst performing from the charts.
But not all 90-100 are Superstocks, some will High Flyers and Style Neutral.
Indeed
Chinese stock market (Shanghai Composite) is still only down 13%
From April 2015 to Feb 2016 it declined 75% and then rallied over 80% to Feb 2018. It has declined 47% from that high. In the last year, however it has done nothing spectacular. I am short.
Hi Chris, I noticed the super stocks phenomena too. Says to me the QVM theory is just fine until M goes into reverse. Always had a (psychological?) problem with M and prefer QV - but that has hardly be a walk in the park either. Additionally if you take the last 2 months the super stocks drop is even more significant.
Yes as I said to Ed, momentum can quickly reverse and this is what we have seen recently. Be interesting to see which styles are the best performing over the 1 and 2 months.
Do you have figures for all the Superstocks?
I don't know if anyone is interested but following Ed's NAPS article in January, I set up 2 folios, one was the top 20 VM shares and the other was the top 20 QM shares on Stockopedia.
The VM folio is worth only 46% and the QM is 62%, so Q has held up better than V which maybe surprising. Down 54% is surprising, the worst ones in VM are: Premier Oil (LON:PMO), Mitchells & Butlers (LON:MAB) and RockRose Energy (LON:RRE). In Qm it's:
Hyve (LON:HYVE), Rank (LON:RNK), Vistry (LON:VTY). No shares are in profit.
I also did a NAPS, not same as Ed's but a more original based one, it is now only 58.4%, worst shares are : EnQuest (LON:ENQ), Maintel Holdings (LON:MAI) and Prime People (LON:PRP).
Indivior (LON:INDV) is showing a slight profit.
Hi Paul,
If you’re reading this, I just wanted to say I hope you’re ok. There’s a lot of us on here who wish you well and enjoy your writing and company.
Best wishes,
Andrew
Of course things could change dramatically if there was a readily available cheap treatment that could reduce the seriousness of Coronavirus to something similar to flu and justify raising the lockdown. G7 leaders though are too engrossed in details of the lockdown and pumping billions into the economy than coordinating the global medical community to test out the options. These promising results from a small study in France could have been a definitive confirmatory study By now if such coordination existed. https://www.connexionfrance.co...
These promising results from a small study in France could have been a definitive confirmatory study
This kind of post isn't at all useful. There's a Guardian article on this:
https://www.theguardian.com/wo...
Leaving aside the fact that it ignores the need to perform proper clinical trials as the side-effects of using the drug are unknown it appears that it doesn't actually help the group of people who really need it:
But a Japanese health ministry source suggested the drug was not as effective in people with more severe symptoms. “We’ve given Avigan to 70 to 80 people, but it doesn’t seem to work that well when the virus has already multiplied,” the source told the Mainichi Shimbun.
Clearly, though, the real reason that it's not been immediately utilised as a quick, safe and cheap cure is not because it isn't proven to work and it doesn't really work when it's needed but is instead because:
G7 leaders though are too engrossed in details of the lockdown and pumping billions into the economy than coordinating the global medical community to test out the options.
I mean, that's the obvious conclusion, right?
timarr
From the Report of the WHO-China Joint Mission on Coronavirus Disease 2019
I'm sure there are many other references people could find. There is a lot of work being done.
Who is going to lend the Billions that governments are spending? Or will the money have to be created by central banks, leaving the FFX market to sort out the currency implications?
How will this be made to work in the Eurozone?
Someone's tombstone is going to read "He said whatever it takes ".
Well yes, I suspect they are effectively printing money - which potentially has massively destructive inflationary risks. However, it seems to me that the alternative of not supporting the economy through a shutdown over a significant period would be far more devastating - I don't think I exaggerate if I say it could threaten our civilisation and means of government.
I commented on the likely need to print money earlier in the week and if this is been done with some degree of co-ordination across nations then whilst it will still potentially be inflationary it won't necessarily create massive exchange rate crises. (Although there is an obvious conspiracy theory lurking in there for those that wish to find it.)
I think I would rather have "He said whatever it takes " on my tombstone than, "He said we must have fiscal prudence at all costs."
'So there are probably around 600,000 deaths across the UK as a whole every year, including Wales and Northern Ireland.'
This appears to suggest that the UK consists of England, Wales & Northern Ireland. I see this more and more in the press coverage I read. The United Kingdom primarily is the United Kingdoms of England and Scotland following the Union of the Crowns in 1603. I understand that health is a devolved matter and that you may exclude Scottish statistics, accordingly. That being the case, you need to adjust your geographical terminology, accordingly.
To be precise, the Union of Crowns in 1603 maintained separate countries under a Scottish king (James I of England, simultaneously James VI of Scotland). Political union between England and Scotland was achieved a century later under Queen Anne (sister-in-law to a Dutch king) under the Act of Union in 1707 (though the two countries kept different legal and other systems). Ireland joined in 1800 (under the great-grandson of a German king) - and (mostly) became independent again in 1922.
Irrelevant to the current crisis? Look at how London reacted to the plague in 1665; and compare the contagion characteristics of smallpox and coronavirus. There are frightening parallels to the present day - history has much to teach us. Now what was that about the madness of crowds?
The figure seems about right for the UK though "There were 616,014 deaths registered in the UK in 2018, an increase of 1.5% from 607,172 in 2017."
That was a typo. I meant to write "including Scotland and Northern Ireland".
Interesting German view here with English subtitles...
https://www.youtube.com/watch?v=p_AyuhbnPOI
Governments do need to learn from this current situation otherwise every small drama will become a huge crisis in our digitally overloaded world...
Foot note: Hargreaves Lansdown are quoting in excess of 5 years see there News pages.
Hi EmptyPockets,
HL do not know anything more than you or me or the barmaid. These are the same poltroons who were telling us to buy Woodford. They are useless. Ignore them. Make your own decisions and if something isn't working ditch it and try something else, same as when running a business or a marriage or anything.
If you could tell me that HL spotted the short squeeze coming on Marston's (LON:MARS) this morning and advised their clients to buy for a 40% gain in one trading day then I might believe they have something useful to say. I just blank them out. I also try to ignore the media. Graham and Paul and a handful of other analysts are worth listening to but even then you must make your own decisions, they aren't infallible (and don't claim to be).
Michael
Or Cineworld (CINE) up 82% today on a short sqeeze
Love the use of the word 'poltroons'. Was a favourite disparaging term used by Tony Hancock in the long running and much missed Hancocks Half hour
Thanks for your input yesterday Michael I understand I do make my own calls it's just the voices out there all come up with the same chat stay long . my examples of RR. & Lloy were reasons why not too. Thanks.
Hi Graham,
in response to your closing paragraph around how long will it take for the market to recover I started investing in late 2007 and thought I'll purchase at that time two strong shares LLOY and RR. 2008 hit say no more. Everybody in Investing says 'stay in it for the long game'. Well here we are in 2020 I still have the same shares with big losses. I try to be a patient man but some 12 years on from those investments. I almost swear when people say be in it for the long run. This time I don't know. I wish I could say 'I learnt about investing from that' but my portfolio says otherwise. On a bright note it's only paper losses, but this is different I fear if it turns to actual losses.
Hope Paul and yourself are OK take care 'Let the force be with you'
As expected - first reports to shore up the Italian Banking system - 410 billion euros.
https://www.investing.com/news/economy/breaking-italian-bonds-stocks-surge-on-report-of-ecb-aid-preparation-2114326
guys I am sorry but "ouch" this is really hurting!
Hello Graham,
Thanks for your commentary on the coronavirus situation. In response to your discussion of the likely number of cases of coronavirus in the UK I would note that as recently as 2008-9 there were 13,000 deaths from influenza like illness in the UK which is not than many less than the best case scenario of 20,000 you mention for coronavirus, although of course every death is a tragedy. I am also amazed that in China, where the initial outbreak appears to be over, there were 3,300 deaths. Taking account of the population sizes, this would be equivalent to only 110 deaths in the UK. If you disbelieve the Chinese figures then South Korea (which has a population similar to the UK), has reported only 84 deaths after a month of the outbreak which, like in China, appears to be ending. My question is why are we expecting, as a best case scenario, 20,000 deaths when South Korea has got through the first phase of the outbreak with just 84 deaths? Is it the weather conditions in South Korea or is the UK government using ridiculously pessimistic forecasts in order to focus collective consciousness on the seriousness of this situation? Incidentally, I wouldn't necessarily criticise the government if it was doing this.
Italy has a population 10% smaller than the UK with 2500 deaths attributed to the virus.
The problem is Italy, with its death toll of 2,500.
Its not going to be possible to analyse at this stage why this is so high relative to the stats quoted for China and South Korea.
There's much supposition about the age profile of the population, but given no-one's got a handle on it, this is alarming the statisticians, hence the early imposition of restrictions by the UK Govt ahead of its plan.
I think there are several factors: Italy was slow to take action, did not really respond until the death count started to soar, by then it had spread quite widely. Italy has one of the oldest populations in Europe and has many deaths from flu also. S. Korea I understand has a higher proportion of hospitals beds. S. Korea isolated the cases quickly and then tracked contacts, it also did extensive testing, upto 10-15,000 tests per day which is far higher than any other country.
South Korea conducted a comprehensive program of testing, isolating cases, and tracking. They acted swiftly and efficiently, learning from past experience of epidemics. Acting early like this has a significant impact on the final number of cases/deaths.
Both South Korea and China had experienced SARS - that must have been a factor in why they acted so promptly once the problem was recognised. Britain's inward-looking Government had not had that experience.
Here is something I fail to understand or perhaps it's just a senior moment
REIT - big prices falls
Is it just the herd mentality ? or
They think the tenants will go bust or refuse to pay?
Is it they think the capital values have diminished by 30-40%?
Disclosure I hold Regional REIT (LON:RGL)
Perhaps it's my mind that's self isolated
I hold Regional Reit (LON:RGL) too. I am truly not bragging but I sold most stuff a while back, not recently. I kept this one. My finger wouldn't press "accept" on the sell. And I'm pretty sure it wouldn't do it now.
The reasons are various, including:
- property always gets hammered in a recession
- this time: increased risk of tenants going bust (retail, cinemas etc.)
- or not needing space (how much office space do you need when 90% are working from home?)
- those risks magnified where there is high debt (e.g. Regional REIT (LON:RGL) )
- that debt will have associated covenents e.g. in relation to book value (not a happy situation)
- some unique factors (e.g. student accomodation might not have any students)
- all REITS have to pay out 90% of profits. As little is retained, there is no buffer.
- so could be forced to raise equity at very discounted level
so no, I don't think it's just herd mentality
Edit: I own various REITS such as Tritax Big Box Reit (LON:BBOX) and Primary Health Properties (LON:PHP)
Thanks cmp
Yes some good points although for Regional REIT (LON:RGL) the covenants and tax status make the most sense for me good points.
BTW is there any reason you hold Tritax Big Box Reit (LON:BBOX) rather than £rgl?
I am surprised by how much Tritax Big Box Reit (LON:BBOX) has fallen. It seems to have a very good tenant list on long leases. Much better tenants than Regional Reit (LON:RGL) including such as Amazon.
I prefer Tritax Big Box Reit (LON:BBOX) over Regional REIT (LON:RGL) because, in brief:
- as stated by doublelutz they are very different portfolios: big box logistics v offices.
- a typical BBOX logistics hub is highly automated by their tenants. It is actually a core part of their client's business model and mission critical to them
- an office is an office. If you don't like it you can easily move out and find another one
- the more we shop online the more big boxes will be needed. Demand for big boxes will grow at a faster rate than the economy
- the more we work digitally / remotely / virtually the less offices we will need. Demand for offices probably wont grow at the same rate as the economy
Regional Reit (LON:RGL) was my largest holding which I have had for years for the very good dividend. I am kicking myself for not selling at 120 when I actually thought it was too high. I started selling it around 100 but am kicking myself even further for not selling the remainder on the clear chart break below 90. I did sell a lot in the 80's and then in the 70's and am now left with only 3% of my original holding. 70 odd pence seemed diabolical but today even worse! I would say I always use charts for when to sell but then perhaps I became too attached to the share. It wont happen again - at least until the next time!
RGL are almost exclusively offices and they have reasonable rents. People will not work at home forever. Whether any tenants have got into trouble depends on the businesses they are in. If they are offices of a restaurant chain they have a problem. If they are accountants or lawyers no problem! Provided the rents are sufficient to pay the interest charges I don't think the banks will want to take over a large collection of offices at the present time. If the virus clears up over the next six months then it could become a bargain.
piworld videos during this results season:
Judges Scientific (LON:JDG) piworld will be publishing their analyst presentation from this morning over the next few days.
Empresaria (LON:EMR) we have an interview with the CEO & CFO here. We've also got their full results presentation, given this afternoon, to follow.
Kape Technologies (LON:KAPE) if you didn't see it yesterday, here's their results presentation. They were good results. COVID-19 no operational effect.
Litigation Capital Management (LON:LIT) results overview with CEO and Exec Vice Chairman. Miraculously we caught Patrick Maloney, CEO before he dashed back to Austrialia. They say they should be relatively unaffected by COVID-19.
Somero Enterprises Inc (LON:SOM) results presentation, including investor questions should follow over the next few days.
Finally, announced today, we're thrilled #piworld is Winner of the ADVFN International Financial Awards 2020: Best Investor Relations Firm!
Enjoy all piworld content http://bit.ly/fab_piworld and be entertained by our piworld investor interviews: http://bit.ly/piwInterviews.
Congrats Tamzin, great news!
Question for the collective minds - what's the opinion on housebuilders?
Some are obviously cheap - Redrow (LON:RDW) is on a P/TB of 0.87. Mccarthy & Stone (LON:MCS) is at 0.68. Both are debt free. Can't see either going bust unless the respective managements go mad (always a possibility, of course).
But with a recession likely looming are they cheap enough?
timarr
I am eyeing them up. I think a time will come when these are great opportunities. I expect the govt to steamroller planning laws (as they had already started to do) and try to set off a building boom to "get the nation back to work" a bit like the 1930s.
The best time to buy builders is when it becomes clear that they will survivie a recession, which typically requires light at the end of the tunnel. I'm not sure we're there yet.
(Not being funny but in the worst case scenarios McCarthy & Stone (LON:MCS) will lose a lot of potential customers)
Looks like someone has just ran for the exit door on £MCS. I wouldn’t put them at the top of the list as we may be about to enter the biggest recession any of us have ever seen (global trade has never paused like this before). If that is the case no one is going to be buying houses. I would be looking at the small, repeat purchase, quality staples companies way before anything as cyclical as house builders.
Any views on today's report from Tribal?
How we doing brothers?
Any company with a pension deficit is also going to face the double whammy of falling interest rates and lower stock values. If companies didn’t have enough problems with cash flow, they could have more misery in their defined benefit liabilities.
G
Nobody has mentioned the collapsing £. My biggest worry now is that after the irresponsible recent cut in interest rates added to the huge borrowings the government has rushed into, interest rates will have to raised to defend the collapsing currency. Bonds are falling, rates are rising.
The government's failure to learn any lessons from the 2008 near total collapse means it has limited it's ability to help this time.
Advice to all subscribers - go out and buy a fixed rate savings account. Much less stressful and little chance of massive losses.
Huge chance of real (i.e. inflation adjusted) losses over a long period though, you just don't see them in the same way...
As written by MassimoJack you are Guaranteed a progressive loss on any fixed interest vehicle.
If it is an account as you mention the interest will not compensate for the erosion in purchasing power.
If it is a bond traded on the markets you are paying the equivalent of approximately 70 times earnings.
People here have the knowledge and interest (no pun intended) to purchase shares at below 10 time earnings with yields in excess of 10%.
It is hard but worth it.
Hi Graham, just on your write up of Revolution Bars (LON:RBG), I think several of the things management are talking about map across to the type of support the Chancellor set out yesterday. It strikes me as reasonably obvious that every single restaurant and bar (group or individual) is going to need to take unprecedented measures over the next few months. The Govt know this and are providing the resources to soften the blow. That means that 'refinancing' is not necessarily a sign of company specific weakness. Every single hospitatility company will be taking advantage of the Business Interuption Loan if they can, or BoE funding if they are large enough.
I really think we have to change the prism through which we are reading Covid-19 updates. This is a paradigm shift. They are not like other profit warnings. The government have closed down their market and no business (none) plans to have their revenue completely stopped for a prolongued period of time. If they could survive with no revenue for 6 months, then they have not been running their business very efficiently from a shareholder return or capital allocation perspective.
Hi Graham,
I have reservations on the death rates you cite, which I imagine are based on an assumption that all critical care patients receive a hospital bed. According to Wired/Statista, the UK has ~167k hospital beds. If we consider herd immunity (60-70%) and adopt the Imperial College Report's rate of required hospitalisation of 4.4%, we are vastly ill-prepared for the surge of demand for beds at current infection rates, and this doesn't consider these beds are likely already occupied. ICL Report.
Of course this is all depends on the rate of infection and the time it takes to get it under control (whatever form that takes), but I sense there is an element of wishful optimism when adopting 'best case' death rates. We don't know how many are currently affected and we don't know how quickly it will spread, but current projections (doubling every 5 days, ITV, Peston), indicate that our hospitals won't be able to provide for all the patients requiring critical care (even while ignoring existing demand). Take Italy as an example, where Doctor's are having to choose between CV19 patients; who has the best chance of survival vs. who deserves the chance to survive. And what about the other patients booted off the bed in the meantime? Will there be an increase in ER patient deaths? Cancer patient deaths? If the rate of infection cannot be curtailed this seems highly possible.
This could explain the government's shift in position away from the 'herd immunity' approach, at least in the short term. And yes, I totally agree with you about how unsettling this all is. As a new investor, this baptism of fire has taught me some very expensive lessons - not least that when there's smoke..! Stoked that I started investing for the first time in January!!!
I don't think beds are the main issue, there was talk about converting Hotels into makeshift hospitals, seems like a good idea as most will be empty, I think the main issue is staff, we are already unstaffed and if many of them catch the virus, which they will as they have more exposure to it then there won't be enough to care for intensive patients. Italy has just enough beds at the moment because of the death rate there is high, yesterday 345 people died. Deaths rates are very difficult to work out, if you do it on reported cases then it's around 3.5% at present but then a lot of those cases are still on going, of course many countries this is well under reported for various reasons.
However you calculate current death rates, the existing data has not confronted what will happen when hospital capacity is exceeded. It also only looks at CV19 deaths, and not all deaths over the period.
Perhaps I'm overly pessimistic, but I cannot see the government converting enough hotel beds to satisfy projected demand. Then there is your point on staff! There are only so many medical students who can be made available! The public health landscape in four weeks may look depressingly different than it does today. Almost seems sensible to try and acquire the virus now before everyone else gets it; if you're going to need hospital care, get in while supply still exists. Otherwise, self-isolate and weep over your portfolio losses.
Dont forget the ICU equipment needed for the 5% of cases, which based on the projected numbers we will not have. Sorry
Great article!
Thank you for you’re great work and insight
Thank you Graham - agree with your thoughts. The impact is much lower than the amount of activity going on.
A couple of things to highlight which are not showing up on reported stats.
1.) The so called 'number of cases' refers to number confirmed from testing. Only those with severe symptoms admitted to hospital are being tested (against WHO advise). The 'death rate estimates ' are based on this number as the numerator. Government has always admitted that no. of cases in community is far more than in hospital. Nobody is going to come forward with a stab at the actual mortality rate, the scientific papers will only report what they can measure.
Interpret reported new cases carefully, because this number only grows based on how much testing can be done (so is not increasing with the expected exponential factor of a true epidemic). This will end up looking linear as we are near max testing capacity while the true viral spread carries on exponentially around the few who are being tested.
Initially PHE was reporting the actual infection rate is about 10 times that reported. Heard on news this am that although about 1500 are confirmed cases in UK, they estimate actual is around 55000. So the estimate multiple has already gone to 36x
2.) The govt did a slight U- turn on strategy from 'herd immunity' to stricter containment (although not complete containment). What is not being said is that strict containment leaves population wth no immunity. Problem returns when restrictions are lifted and round 2 stats are generally worse. So if we succeed in strict containment now and markets recover, I might expect a second fiasco this winter. If we relax strict containment, we'll exceed healthcare capacity now (leading to more deaths) but we'll have greater herd immunity and more likely prevent a round 2 disaster.
The decision makers do seem to be between a rock and a hard place and have settled somewhere in the spectrum between the two.
One good thing about these daily 5% drops...they are costing me a lot less than at the start.
It needs world co-ordinated action to have an antibody test. Apparently this still isn't available, but plenty are working on it. This then should be compulsory, but will require a massive, and logically applied roll-out.
Then we will now the 'known unknowns'. At the moment these restrictions are inevitably being made blind, and accordingly could cause more damage than the virus.
Is it time to start my investment back up plan?
Steps 1-5;
This won't be the first or last time for such markets activity. Trust your decisions and let the market playout. Good luck to all.
Well, It a bit longer than 6 months and I just wanted to post an update to my five-point plan for fun. Hope you enjoy it.
Failed at point 1 turn off devices. Never mind.
passed at point 2 - I did plant the potatoes
Point 3 - Wait for 6 months. Wow they grew
Pass point 4 -feeding the family. They tasted good as well.
Point 5 did I become rich or poor? Well, I think it worked out well in the end. Patience may be the number one virtue when it comes to investing.
I hope it worked out well for the whole community. Good luck for 2021.
BSV
'when the tide goes out we'll see who's been swimming naked' WB
What the current events are showing us again and again, is that the human race is rubbish at assessing risk.
A large number of studies and papers have been written on this subject. Nassim Taleb of "Black Swan" fame justifiably rants about it.
The following is an article he wrote during the 2008/09 stock market crash. It is much easier to read and understand than his technical papers.
https://hbr.org/2009/10/the-six-mistakes-executives-make-in-risk-management
In the meantime, I am in self-isolation being in the risk category. Prime Video and Netflix are my best friends, for how long I don't know.
Great article !
It is world war 3, without the weapons, as someone mentioned to me today.
Very difficult to quantify- many variables and unknowns and huge psychological element.
Incidentally, today there has been an uptick of cases in China, again!
I don't think talk of world war 3 are helpful, they encourage the idiots out there to panic shop for loo rolls etc.
Regarding the uptick in China, I have read the same today and I believe it is happening in Singapore and Hong Kong too. That was always the risk with the total lock-down approach. When people come out of isolation they still have no immunity so it starts spreading again. The approach of trying to build up some herd immunity might be politically difficult, but seems sensible to me. Remembering that most people seem to get only mild symptoms and recover well. If it was killing 50% of those who got it, of all ages it would be different. But if most people shrug it off OK, it seems sensible to protect the elderly but accept that it will spread through the rest of us.
If the death rate was 0.1% that would be excellent news in comparison to current estimates, but it's hard to see that reconciling with the data so far. We would also have to understand the apparent differences with the impact of seasonal flu, where the death rate is much better understood and is essentially the same number 0.1%.
South Korea have been ahead of the game in mass testing. They have tested nearly 300,000 people and are still going at a rate of 15,000 a day. This has resulted in 8,320 positive results, of which 81 have died (as of 17th March). This is probably the best data available for the death rate and suggests the death rate is 1%, where the healthcare system is not overwhelmed and able to respond effectively.
South Korea has good figures but a 1% death rate assumes none of the other 51million people not tested don't have it. They do have 8400 people tested positive but also 16000 suspected positive which alone would give a 0.3% death rate assuming they are COVID19 positive.
Also skewing their figures, is that they have a large number of youngish non smoking women infected who recover better unlike the older smoking male Italians.
The calculation of death rate based on South Korean data might need adjusting for population age. The median age in the UK is within 1 year of South Korea, so perhaps results could be an approximate guide for the UK. [I am not going to do a proper calc looking at demographics]
Many of the countries with very weak healthcare systems also have a much younger average age.
Great points Graham and I coincidentally posted a similar piece on Aviva board.
Current global infection rate is 1 in 38,500
It is utter insanity to spend $30 - $40 trillion dollars (my calculation) keeping ultimately 1% of the population alive while destroying the livelihoods of the other 99%.
Far better in my view for the WHO / United Nations G20 or some other global body to take control and to insist on complete isolation for the retired and vulnerable groups while leaving everybody else to go about their lives building up herd resistance. There will be some increased mortality but not huge and the retired folk can be released once the epidemic had passed.
It is inevitable if this continues for more than 4 weeks, the global economy will be crushed and tens of millions becoming unemployed globally, not to mention further rapid debasement of money and inflation as the world struggles to pay for this, plus the likelihood of a return of the virus later on.
Trump is about as useful as a fart in a teacup but please Merkel, Macron, Johnson, lets have joined up thinking.
In my view, there are two possible routes:
1. Suppression of the virus by partial lockdown for 6-12 months until we get a vacinne or anti-viral. The degree of suppression will have an equal negative effect on the economy.
2. Total lockdown for 4 weeks. This in theory this should kill the virus.
In both cases, its like trying to herd cats getting people to comply.
I suspect an enforced lockdown is on the cards Europe wide. This needs to be fixed urgently.
A little history lesson on the Spanish Flu. I won't link to the source website as it has annoying popups. The first identified case was an army private on 11 March 1918. It escalated to 100 soldiers on that day. March 1919 was the first month in which no influenza deaths were reported in Seattle.
So, the worst pandemic in modern history lasted about a year.
(The Black Death in the 1300's was a real doozy, however.)
Evidence exists that the Chinese used a smallpox vaccine around 1000AD. In 1796, Edward Jenner used cowpox to create immunity to smallpox. In 1885 Pasteur developed a rabies vaccine. In the 1930's, many developments rapidly followed. So it was only after the Spanish Flu that we really knew how to develop vaccines for a wide range of cases.
This is an enlightening short article to add further to your comment - https://app.hedgeye.com/insights/82091-how-epidemics-change-history
The current situation could turn on a sixpence - which makes deciding whether to stay in or get out of the market very difficult.
A vaccine is still a long way away (or so you would expect) but there are several medical trials of antiviral drugs underway which started during the Chinese outbreak and these will surely make a recommendation soon. This could change the prognosis significantly for the most severely affected.
Even the present social distancing is creating such a pressure that surely there will be some inventions just driven by necessity. For example, if we all have to go out wearing special hoods, but it dramatically reduces R, we'll do it in an instant.
Graham it's great to have you back and to get another view on some of these stocks. I hope you made the most of St Patrick's Day yesterday. I would be interested to hear your view on whether businesses would use the new government backed loans vs equity fundraising. Thanks
The thinking that this condition affects the elderly and with co morbities, is true to some extent but currently there are a number of patients in their 40s or younger in the ICU in this country. Please check this article
https://www.thetimes.co.uk/article/coronavirus-nhs-doctors-fear-they-will-die-for-lack-of-safety-equipment-mdmkbzq99
The issue that Italy has been facing is shortage of ventilators and other resources to support the unwell, who were coming in huge numbers, overwhelming the capacity. In this scenario, very harsh decisions are made on who gets the precious ventilator etc.
Keep safe!
It is worth remembering that the best bottom-fishing opportunities arise when everyone else has given up (we are not there yet). There is still a long way to go in this crisis, we haven’t actually felt the real pain yet (although we know it is coming). Best not to try and catch the knife too early. Better to miss out on the start of the recovery rather than try and call the bottom (none of us will succeed in doing that). Remember there is a lot of debt in the system that is going to rapidly consume equity value now that world trade has ground to a halt. We are all going to be surprised by the depth of the losses when they actually come through. Similarities with 2008-09 are very relevant here, buying too early was the mistake then (market soared after Fed announced TARP and then plummeted again as losses came through). Keep your powder dry for now, optically low valuation multiples don’t mean anything at present time as earnings and book values are all going materially lower.
I still feel the highest quality names - the dream list as opposed to the watchlist, while below recent historic levels are not quite at bargain basement levels.
I think if you are willing to go down the market cap spectrum their are a lot of opportunities around. Funds must be getting redemptions and have to sell what they can.
Air Partner (LON:AIR) is hideously cheap (but I also thought that at 90p!) on what was in my view a reassuring update all things considered and management commentary showed maturity. Cash reported at half year was 4.3m current market cap sub 10m. Has been through 9/11 and a whole bunch of other dramas. I hold unfortunately but am holding my nerve on this one!
Brand Architekts (LON:BAR) £15m in cash, 16m market value. Half year Op Profit from continuing Ops 1.6m!
Ramsdens Holdings (LON:RFX) I hold (ffs). Its around its IPO price now, which was not a great multiple. Management are true stewards of the business. I had sold a piece (I thought at the time with hindsight incorrectly!) on the H & T (LON:HAT) high cost credit - may well be time to buy back.
M&g (LON:MNG) - agreed, but in this sector I think there are some higher quality bargains around, although perhaps not quite at the M&g (LON:MNG) level.
REITs - take your pick - I think even if commercial property is no longer used for shops or offices, they will be used for something else. Vertical farms perhaps??
RE: your Ramsdens Holdings (LON:RFX) comment. My portfolio seems to consist of only 2 stocks at the mo. LON:FFS and LON:WTF
"Brand Architekts (LON:BAR) £15m in cash, 16m market value. Half year Op Profit from continuing Ops 1.6m!"
they also have a £9m pension deficit
Great thought Graham and I will add another slightly macabre but valid comment. Most of the people who appear to die of Covid are elderly, with 3 or more existing serious health problems. While, as you say, every death is a tragedy, the majority of those who die probably only had a short period of life left which was itself likely to be of diminished quality.
It is important that we remember the base case scenario. The options here are not die of Covid 19 or live forever. Really, we are probably seeing a lot of deaths that would have happened naturally over the next 2-3 years pulled forward. It is perhaps a sign of how averse our society has come to facing up to death that this is causing such an extreme reaction. My aged mother, who is at risk, keeps telling me that she's had her 3 score years and 10, and its all trouble after that. I think that is extreme, but also that our expectations are perhaps unreasonable. Everyone has to die of something. It is only the speed with which Covid kills those who are already weak and the fact that we have given it a name that is unusual.
I apologise in advance to anyone who thinks the above is callous.
Thanks to Graham and other like Donald Pond for having the courage to address the elephant in the room with data and perspective: that (to date) the overwhelming majority of deaths relate to the elderly (of which I am nearly but not quite one) and the sick and presumably especially those who are elderly AND sick and that as an incremental death toll even scary numbers like 25-250,000 are not societal changing
Economically, their early death will therefore have limited, even maybe positive, overall consequences, since their capital will be recycled and re-distributed and their cost of care removed. In a few years, this will be a bump in statistics unless we believe that this virus will have enduring effects on the economy = our way of life. (I expect some reduction in globalisation but not much else). Politically, it is too early to say this but the young are already badly treated by the old: worst affected by job insecurity and now banned from travel and partying. They will rebel eventually.
From an investing point of view, like nearly everyone I have been hammered recently and having earnt all my money abroad, I am reliant on my investments rather than a UK pension. So short term a disaster - it will change my way of life if the stock market does not recover
However, I am trying to decide how brave I am and how cashflow rich my household is. Because surely there is value at the moment in long term asset rich companies. So, assuming they can weather a short term storm AND eg (property) values revert to close recent levels, apparent basket cases offer opportunity.
For example, Pubs have been around forever and Marston's (LON:MARS) is on a price of 23p with a P/TBV of <0.3, and 91% freehold). It might lose a years profit (although the govt seems willing to help here) and I doubt will pay any divi this year but looking 2-3 years out and when a lot of under-performing casual dining capacity has been taken out on an accelerated basis... ..
I bought at 89p in Jan and still hold. Should I buy more now the price is roughly 1/4 of that! Blood is certainly on the streets.
It's worth noting that Marstons has about 1.4 billion of debt. Quite large in relation to its market cap of 140 million.
Marston's (LON:MARS) equity is worth nothing. It is more indebted than Thomas Cook and is facing market conditions that are intensely more challenging than Thomas Cook’s hot summer of 2018. Anyone ignoring debt in current times is going to lose a lot of money I am afraid. The pubs will still be around forever, but they will be owned by new shareholders who get to buy them from the lending banks at cost.
I appreciate your post at 13:14 was in good faith but right now at 15:53 Marston's (LON:MARS) is up 41% on the day.
41%!!!!
I nearly bought it yesterday. Blast.
Hedge funds are covering their shorts in Marston's (LON:MARS), Cineworld (LON:CINE) and Aston Martin Lagonda Global Holdings (LON:AML) today as they fear shorting is about to be banned (which it will be). Don’t think the share price moves in those names today means anything else. Hedge funds are just locking in big profits from shorting these massively indebted companies.
Hi Graham, great effort at putting this in perspective. But, whereas it's certainly possible that the there *could* be roughly 1,000 cases for every 1 death (which is roughly the same as seasonal flu) there's a distinct possibility the death rate is significantly higher than that (0.1%). The current naive death rate is about 4%. Most reputable estimates I've come across suggest it will probably end up at about 1%. If it is 1% then the 250,000 figure for deaths in the UK looks much more plausible.
Another important thing to note is that the current estimate of 1 death in 1,000 is at a time where the NHS is currently coping (just about by the sounds of it) with the amount of patients being admitted for care. If the infection rate increases at the current rates the NHS will quickly be overwhelmed and will not be able to care for patients adequately, thus probably leading to an increase of the death rate.
I agree - most reliable reports suggest 1-2% overall death rates, so not sure where 0.1% comes from?
Unless they test everyone any estimate of death rate is surely nothing better than an educated guess. I have read estimates of between 0.5% and up to 4% with most around about 1.8-2%. It has varied a lot country to country which in part will be due to the numbers being tested, but also the medical facilities and the average state of health in that country (in China for example there are apparently a lot of heavy older male smokers, and Italy has one of the oldest populations in Europe).
As it seems many people get very mild symptoms I think the number of deaths is a much better indicator to keep an eye on for signs of the peak being reached, than the number of confirmed cases.
Don't know about the rest of you but this period is causing me some serious stress.
Logically I know the market will recover in time, it always does. Emotionally I am trying to keep a lid on the panic. 50% down on my portfolio at the moment, as my only real asset and a decade of saving this is incredibly scary.
I have always been a buy and hold investor so continuing in the process and adding to positions as and when I can free up cash. Some in individual shares and some in investment trusts.
Like Sosandar (LON:SOS) for instance the drop in price does not correlate with the real long term impact (I think!) so I have put in a small buy today.
In the ideal world I would have noticed Covid-19 and sold everything and bought back in when the bottom was hit. But anyone who claims to have done this is a) Lying, b) incredibly lucky.
I strongly believe that in 3- 4 months everything will be back to normal and we will start recovering, financially, economically, health wise and in the longer term psychologically.
Good luck to all investors, don't panic and keep safe and well.
I’m not one for giving financial advice, and i’m not here. However, you started your comment mentioning how stressful you are finding the markets at the moment. Then you mention you have bought some Sosandar (LON:SOS) this morning. I’m not sure that will be an antidote to your stress levels! I hope it does brilliantly though, for both you and Paul.
I would add Medica (LON:MGP) to that list. Price demolished along with everything else, yet virtually no debt, strong growth, and a model based on remote provision of services and providing extra capacity to health services at a time when, very sad to say, they are going to be extremely stretched. Looks very much a case of 'baby out with the bathwater' for some of these shares but, as ever, fear rules at the moment and I wouldn't bet against them getting even cheaper at some stage. Have bitten the bullet with a couple of cautious purchases but generally keeping a large portion in cash too presently.
BIACS
As a holder of Medica (LON:MGP) I initially felt the same as you. However then I considered that the NHS will be diverting pretty much all of it's resources at dealing with the COVID-19 caseload, so a natural impact is a reduction in usage of services such as those offered by Medica. In fact we are already seeing reports of all non-urgent surgery cancelled, so would expect Medica to be affected. I'm much more bullish on the longer term prospects...
I'm not sure I agree with that - there will be plenty of need for teleradiology for urgent cases even throughout the COVID-19 outbreak... people are still going to come down with other illnesses and/or require diagnostic assessments of ongoing serious conditions etc. - and at a time when the NHS doctors are tied up I would have thought its exactly the time they would turn to the services of a provider like Medica? Also, won't many of the people with COVID-19 require chest x-rays to assess the condition of lungs (I understand lung infections and complications are the primary problem for those who are more seriously affected by the virus and end up hospitalised)? Again, swamping demand for assessments of such xrays seems to be something Medica could assist with - unless I've misunderstood their services (I am not a medical expert so would be good to know if I'm wring on this!). I should add that I have been following Medica and have been an off and on holder for a couple of years now - I am not ambulance chasing here - but it would be good to understand how they will be affected by the current unique stresses on the NHS.
BIACS
To calm your nerves try this trick. Imagine you are 3 years in the future and are looking at your investments. Notice how much they have risen, then with that knowledge notice how you feel.
Random13,
I share your sentiments and, probably like many others on here, have experienced similar drops and watched values plummet daily, typically 5% a day or thereabouts.
I'm also a buy and hold investor, but I sold the biggest losers and added a little bit here and there to the winners (although that's probably misleading now - not many 'winners' left!)
I think the hardest thing is watching something you've built crumble before your very eyes - be it stocks, a project, a relationship - whatever.
I can only share with you something that brings me a little solace (and given to me at a young age by my father) and hope that it brings you something similar - well-known words to most I'm sure but worth reflection:
If
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream—and not make dreams your master;
If you can think—and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’
If you can talk with crowds and keep your virtue,
Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!
It's also worth remembering the sun will rise tomorrow, we hope the impact of the virus won't be as devastating as some out there believe, and a lot of what we're seeing in the investing world is being driven by fear - and algos! Remember they weren't around that much during the last crash (and the one before that) - so much of what we see is magnified by a huge amount.
Regardless, the best of luck to you and let's hope for better days to come.
"a lot of what we're seeing in the investing world is being driven by fear - and algos! Remember they weren't around that much during the last crash (and the one before that) - so much of what we see is magnified by a huge amount"
Computer driven selling (portfolio insurance) bore the brunt of the blame for the 1987 crash.
https://www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp
Regardless of whether the selling is human or algorithmic, it's ultimately humans that write the programs. So Mr Market's manic-depressive behaviour is clearly human in origin.
Jesse Livermore said it best in the 1930's :
“What has happened in the past will happen again. This is because Markets are driven by humans and human nature never changes.”
Thanks for all the replies. Time to sit back and wait for the worst to pass.
I also share your sentiments at this time, and sometimes when it comes to investing and decision making I think its very valuable to just switch off as many distractions as possible and give your self adequate time to slowly asses your own portfolio, preferable when the market is closed, and come up with a plan, which is detailed with each stock. whether the market falls further, flat lines, or suddenly rebounds. Each stock has to be valued on its own merits, demand, financing, wages, supply chains, logistics etc etc the list goes on.
For example anything in my portfolio with with an immediate concern over current trading and/or questionable debt is getting the chop. but this is just my plan. This is detailed around a timeframe which it can survive without significant financing or help. I have much more work to do on this yet. The haunting issue for me, and is already well detailed on these discussions, is the trade off between how long could the government support business's and society before it goes completely broke, versus what if restrictions are lifted what efforts will it need to put in to cope with the huge numbers of sick walking through the doors at hospitals?
The idea is that decisions are made with logic based on the current facts we have rather than emotion and speculation. sounds simple but it takes work.
best of luck.
For those inclined to invest and looking at margins of safety there are some interesting prices now being achieved.
M&g (LON:MNG) is now trading at 50% of its NAV. It's not a very good business but that's assuming a quite remarkable collapse in asset prices (and yes, I know about the retail property portfolio issues).
Ramsdens Holdings (LON:RFX) has a market cap of £28.6 million,, no debt and £16.2 million in cash. My estimates assume that a complete collapse in their FX business for the whole year will wipe out operational profits but even so that's an extraordinary price for a decent business.
Anyone spotted any other anomalies?
timarr
Agree re Ramsdens. Dart group also on my watchlist.
Couldn't agree more Timarr. Cash is about 40p per share. One of my largest holdings, but like the rest of my portfolio very deep in the red, terms of virtual losses.
timarr, you are making some useful comments, keep it up.
You spotted the PLUS announcement, I bought 655p and sold in 24 hours 797p
and now M&G (MNG). I bought when it started falling but it kept falling so appreciate the 50% of NAV remark and shall add.
Indeed not a good business, the charges are high on the funds, the website creeks, the service is poor. Nevertheless they are a large house, some of the managers are skilled and the back office will not be pushed around. I have had holdings with them since 1965 (when a minor) and in maturity switching between bread and butter funds and flavour of the month has always worked.
You mentionned Prudential (PRU) some time ago as a holding... sure you are not happy with that. It is the life insurance part, paying out annuities with higher rates than they can be funded. I recently bought some on New York because the listing symbol there is (PUK)!!!
Hi aflash
You mentionned Prudential (PRU) some time ago as a holding... sure you are not happy with that. It is the life insurance part, paying out annuities with higher rates than they can be funded.
Quite a lot of things I'm not happy with at the moment :-)
But yes, Prudential (LON:PRU) has been hammered along with most of the life insurers - but if it's group mentality as opposed to company specific then I don't lose a lot of sleep over it. The insurance industry as a whole can't be allowed to collapse, so it's very unlikely to happen. But there may be massive dilution if governments need to step in, that's a risk. A dividend cut is more likely, though.
There are a range of credible scenarios about how the crisis will pan out from it being over in 3 months, to it being ongoing but contained for another year to continued outbreaks and control measures until we have a vaccine - so 18 months or so. That's too wide a range to make any big plays now and we may all find ourselves with calls on our cash to support ourselves, parents or children, so a lot of caution is needed.
That said there are areas of value with decent margins of safety around. Anything that survives this carnage will do OK - picking future winners right now is not on the agenda. And anyone that comes out the back end of this with cash in hand will be able to buy into the recovery with a lot more comfort than buying into the teeth of the hurricane. There is no need to chase anything, there is no need to risk capital.
But - there will be opportunities where there's a clear margin of safety. Buying 6% or 7% yield at sub-10 PE's will be very profitable as long as the dividends are maintained. There are plenty of such stocks around at the moment - Tp Icap (LON:TCAP) for instance, which has some downside protection as some areas benefit from volatility (not all though, so it's not a one-way bet). That said buying anything now is quite likely to result in a capital loss in the short term. Only when we start to see real earnings impacts will we really get a feeling for where the market will settle at.
Stay safe.timarr
picking future winners right now is not on the agenda
Yes it is! That is where to concentrate rather than looking at losses.
To stick with the brokers/fund houses theme there will be consolidation. Who has the funds/balance sheet strength to take over others and who will be taken over?
buying anything now is quite likely to result in a capital loss in the short term
Of course, picking bottoms is difficult.
However we pay attention, we watch, we stay focused.
timarr
Re: life insurers. With Legal & General (LON:LGEN) for example, they are being hammered because their NAV declines when the risk free rate falls and when risk assets fall. But one thing that works the other way is mortality. I don't want to offend, but they make money when their customers die, particularly annuity holders and defined benefit scheme participants.
With Prudential (LON:PRU) it was my understanding that in the newly constituted business, mortality would work against the company because in Asia they sell a lot of life assurance that pays out when the customer dies, rather than running DB pension schemes and annuities. I could have this wrong. Do you know anything about that?
Hi cmpeckham
With Prudential (LON:PRU) it was my understanding that in the newly constituted business, mortality would work against the company because in Asia they sell a lot of life assurance that pays out when the customer dies
No I wasn't aware of that, but I'm more focused on the long-term than short-term blips - life insurers run extensive stress testing and investing in them requires an act of faith that they know what they're doing. In truth, that's the case with most companies but with life insurers it's more than normally obvious.
If I was being brutally materialistic about this I'd suggest that they're likely to see a boom in new insurance policies and see significant decreases in policy surrenders going forward. When SARS struck they saw a 17% rise in sales in Asia and their business was much smaller there then. Against that I believe a lot of policy sales in China are direct so you would expect to see some disruption there. But how you model that I do not know.
Overall the risk to life insurers is solvency, so keeping an eye on their solvency ratios is important. However, with so many moving parts I don't think anyone can confidently state they offer a good margin of safety right now, although the yields on offer certainly point in that direction.timarr
cmpeckham....interesting.....I do not have the answer but........
There was a time when Prudential (PRU & NYQ:PUK) was valued about the same as Aviva (AV.L). They tried to buy PRU who tried to buy AIG. Neither worked.
Then PRU's Asian franchise was perceived as a gold mine. The price soared so it may now have far to fall.
Aviva has more Property and Casualty insurance but in Canada (due for a recession in the Oil Patch) and in Europe. The price touched 159p in early 2009 and with the Greek problems in 2011 also depreciated.
Then they tried to retire an 8,75% cumulative preference share(AV.A). The price plunged, I bought. There was an outcry from institutions about inner capital structure and Aviva did not proceed. The price improved, and stayed up until recently. Maybe if the pressure rises on insurance companies, management will try to retire it again.
How about Rockrose Energy (LON:RRE)? £78m market cap, no debt and £232m of unrestricted cash. Oil price hedged at much higher prices than today and 40% of output is Gas. Founder owns 27% ish. Results 23rd March.
(I hold)
cheers
Francis
A brave man who buys into this sector at present though - and even more so one who chooses an extra high risk stock from the sector. RRE were risky even before an oil price collapse due to the potentially ruinous decommissioning liabilities they face. A slight miscalculation could equal total wipeout for an operator this small. With the oil price now heading into the 20's rather than sitting above 60 as it was earlier in the year, RRE now has a lot less safety margin to play with , and still the same equally massive liabilities for decomm. to deal with - the balance is shifting for them and not in a good way... If the oil price bounces back quickly then perhaps they'll be OK, but it's super high risk for them at present - I would put them about as far from a 'safe' bet as it's possible to be - that cash position will look very small in comparison to potential decomm. liabilities for the North Sea (which can frighten even the giant oil & gas players)...
BIACS You may be right about risk etc but the net cash is after restricted cash for future decommissioning liabilities and this is determined by the OGA https://www.ogauthority.co.uk and at the moment decommission costs are being pushed further and further into the future. https://www.ogauthority.co.uk/media/5906/decommissioning-estimate-cost-report-2019.pdf
I hold Rockrose Energy (LON:RRE) and have got slaughtered in the current sell off.
Decomm. liabilities are notoriously difficult to predict with any certainty though (that's why companies are desperate to offload them - this makes far more sense than trying to deal with them efficiently yourself (otherwise the majors would hold onto these assets themselves). I have seen countless failures over the years of smaller offshore oil & gas businesses which had been set up with convincing -sounding plans to try to take advantage of their more 'nimble' and efficient approach to decomm. where they thought they could save money over what oil majors would have to spend and invested in late-life fields to try to take advantage. The latest was Northern Oil & Gas Australia who took over a field from Woodside thinking they could make a killing - with the same old result - it went bust.
Also bear in mind that North Sea decomm. dates and predictions will be rapidly brought forward if the oil prices don't go back up VERY quickly - an uneconomical field (due to extraction costs being above oil revenue receipts) costs horrific amounts to keep open and burns huge sums of money every day. Once the field life projections are updated to account for new lower oil price environment I think we'll see the North Sea oil industry rapidly declining - it's one of the highest production cost areas anywhere in the world - it will not be viable in a $20/$30 oil environment and the only option then is shut down and decommissioning...
Sorry to hear you got caught up with the RRE sell-off. It has been brutal out there.
BIACS
I would add Medica (LON:MGP) to that list. Price demolished along with everything else, yet virtually no debt, strong growth, and a model based on remote provision of services and providing extra capacity to health services at a time when, very sad to say, they are going to be extremely stretched. Looks very much a case of 'baby out with the bathwater' for some of these shares but, as ever, fear rules at the moment and I wouldn't bet against them getting even cheaper at some stage. Have bitten the bullet with a couple of cautious purchases but generally keeping a large portion in cash too presently.
BIACS
Hi Tiimarr, some to be going on with:
Concurrent Technologies (LON:CNC) price around 65p holds about 25% of market cap in cash. Market cap about £40m versus cash of £10m
Rockrose Energy (LON:RRE) price around 540 holds £17 of cash per share on the balance sheet.
Air Partner (LON:AIR) held reported net cash, excluding that held for clients of £4.5m at on 31st October. Current market cap of £15m.
I haven't looked at pension liabilities, but understand that Rockrose Energy (LON:RRE) has a relatively large pension scheme inherited due to acquisitions. See Jack Brumby's recent article.
I hold all of the above and Ramsdens Holdings (LON:RFX), so portfolio currently decimated. Will use my forthcoming ISA allowance to add, depending on price
Hi Timarr,
Re M&G (LON:MNG) (and yes, I know about the retail property portfolio issues)
What are those issues, could you please elaborate. These are down 60% and seem myopically cheap. I have topped on the way down but now stopped as it seems there is no bottom ....
Hi jon652
M&g (LON:MNG) have suspended redemptions on their property portfolio:
https://www.mandg.co.uk/invest...
Around 40% of that was retail which I'd conservatively value at the square root of sod all, although they may have shifted some of that before the crash. Nonetheless the property fund is a small part of the overall asset value so even accounting for it at zero they're trading way below the current net asset value.
The underlying issue is that they're not a great company and, of course, that NAV is being hit by asset price resetting around the world. Graham wrote about them here:
https://cube.investments/cube-...
In summary: M&G has poor or at least questionable growth prospects, but is priced to reflect that and offers huge payouts to those who want it.
At the time they traded at 176.5p!
In short, they're not very good but they are very cheap. Doesn't mean they can't get cheaper.
In markets like this you have to expect to see your portfolio and its holdings grind lower every day for no apparent reason. It can be quite literally heartbreaking to see your hard earned wealth dribbling away. But if you hold decent companies which can survive the crisis then they will recover. A portfolio value on any day is only a snapshot, this is not a sprint, it's a marathon.
timarr
Hi Timarr,
OK, thanks, thats what I thought you were referring to, someone yesterday also said watch out because of the property fund, which is a small part of assets under management. M&G has been seen as a income play since demerger but at 90p omg! I am imagining as it's a new holding for many institutions since the pro demerger and not core, hence it's being sold down. Maybe.
I've been drip feeding into M&g (LON:MNG) the past few days. They are now set to be kicked out of the FTSE-100 which will create additional selling pressure. Of course should they recover then that will work in reverse as they will then be bought up again by the FTSE trackers.
For those prepared to buy and wait for recovery there is an 11.92p dividend due in May along with a special demerger dividend of 3.85p relating to the 2019 financial year (both ex-dividend 16th April).
Bank of America’s projections for dividends in 2020 and 2021 are for 18.6p and 19.7p respectively although of course that may all change now given current events.
Both CEO and CIO bought 150,000 shares each yesterday.
Similar to Ramsdens Holdings (LON:RFX) is H & T (LON:HAT), less exposure to forex and should benefit from the high gold prices, not fallen back as far as Ramsdens Holdings (LON:RFX) but that is looking good value at the moment and could benefit from a recession. Talking of which Begbies Traynor (LON:BEG) should benefit as well, even that has fallen back.
Kape Technologies (LON:KAPE) someone mentioned yesterday, can't see why it will be affected by this virus but shares are well down.
H & T (LON:HAT) has a significant unsecured loan business. Possibly not a good time for that. The pawnbroking side is much more secure, underpinned by assets.
Begbies Traynor (LON:BEG) should do well. I hold.
The fall in Spectra Systems (LON:SPSY) looks anomalous. Close bought several % two days ago. (FWIW the price quoted for the other Spectra listing, Spectra Systems (LON:SPSC) is meaningless as there are many fewer shares in the resticted version and no recent trades at all).
Hi Graham, your views on Air Partner (LON:AIR) would be appreciated if you can find the time.
Hi guys, I will be here until lunchtime and maybe a little bit after, so will try to get around to your requests in the available time. Cheers! G
Any chance on some comment on the results by Strix (LON:KETL) Graham? Initial results seem to be positively received by the market and dividend promise has been kept.
Yes, Strix (LON:KETL) results are good but like all results now we are more worried about the future and hasten to outlook comments. Here, in contrast to everything shutting down at home, we are reminded that China is getting over it:
"The impact on Strix has thus far been limited with our Guangzhou manufacturing now operating at 96% resource levels, having only been closed for one extra week in line with government imposed policy to extend the mandatory Chinese New Year holiday. All of our top 20 largest OEM customers have resumed production and are continuing to increase capacity.
We expect the kettle control market to be resilient but we are closely following the effect on global consumer demand".
Interestingly, if all is to be believed and there is no resurgence of Covid-19 in China. Contrary to what was first thought to be the case, Companies with supply chains out of China are now in a pretty good position.
Some of the pain was absorbed by the 2 week new year shut down, containment measures were rapid and appear to have been effective and most are getting close to full production. It is their end markets that are now the worry as opposed to the initial fear of supply issues.
What is clear now is that we have been falsely conditioned as to what to expect from disease outbreaks. Previously, they were mostly seen as a Chinese problem. And even when it spread to the West, we were adept at containing the problem, either by our actions or the nature of the disease itself.
This time the disease decided not to confirm to the playbook we had in our minds.
So far, it seems that it's not going to be as bad as the Spanish Flu. It's just worse than we originally bargained for.
But remember, we've had worse. We've had world wars, and after all the dust has settled, we've come out better than what we went in with.
Hi Graham - could you please update us on Alpha Plc (AFX) too please?
Every single clothing retailer is struggling badly. Those with stores are especially badly impacted but everyone has seen a big slow down. Consumers are postponing any discretionary purchases and the shutdown in nightlife will hit the fast fashion operators very hard. Needs based purchases (eg lighter jacket for spring) slowing down as we are all going out less
Sosandar (LON:SOS). If you’re working from home, or not going out to restaurants, theatre, cinema etc. are you going to buy new clothes? If you are the type of person who buys two sizes and then returns one, do you want the hassle of having to return the unwanted one in the current climate? Online clothes retailing is presumably a bit more insulated from the threat of Covid-19 than physical stores are, but, while shopping is a leisure pursuit for some, it would seem reasonable to expect online to be hit hard too until evidence to the contrary proves otherwise.
So, the steps that Sosandar (LON:SOS) are taking to reduce costs by reducing marketing spend seem very sensible (no point in paying for ads on the London Underground if very few people are going to see them). The cost of advertising may plummet anyway. But, in the bigger picture, all the projections about future sales must be completely unreliable and as the crisis endures through the spring and summer the financial position ever more precarious unfortunately.
(No position myself)
Agree. There is going to be a lot of bored people with 'unspendable' holiday money around for the next few months. The ones managing to stay employed will start spending on-line. They might not have an audience for the new dress & kitten heal combo but since when did that matter? Amazon are struggling to cope with demand both in the US and UK. (Not only that but I wonder if (LON:SOS) generally older customer base is more liable to retain employment?)
I personally cannot see people spending on non-essentials for the foreseeable future. Almost every industry is going to be affected by this. I just can't imagine anyone sitting at work today thinking 'my job is totally secure. I'm definitely gonna buy these shoes'.
I think so to. It just depends on how long the foreseeable future will be. Currently we are all going to die and loo roll is critical for life. In 2 or 3 months? I suspect international travel will be impacted for years but shopping for cloths?
Morning, any thoughts on the £G4M Gear4Music update this morning? Seems very very reassuring to me, but so far no reaction to it...
No doubt Sosandar (LON:SOS) will disappoint the market - perhaps their business is correlated with the mood (ie no real reason to buy new clothes if you can't go out and wear them). I don't think the average age of their customers are the ones that will have to self-isolate for months but the worst case scenario for everyone else is not good.
Amazed that Rightmove has held up well so far (yesterday it was still over 500p), not sure if estate agents will be able to maintain as many branches and some sort of consolidation may be in order (ie one central office serving a broader location). The need for many small local offices is quickly diminishing anyway and may be a permanent change.
Analysing companies in this environment has suddenly become quite difficult, maybe like driving with a massive fog ahead. There are some that have strong balance sheets (in normal times) that could still potentially end up as zero, or alternatively the government diluting equity shareholders.
Thanks for continuing your updates. I was pleased to read the goodish reports from SOS, JDG and RBG. They were three of my holdings before I sold everything.
I am keeping out of the market and holding onto my cash until things get back to normal. It might not be the best thing to do but that is the choice I have made.
Gear4music Holdings (LON:G4M) - Learn the guitar while you self isolate ?
Some businesses must be getting greater demand?
Both my sons work part time at the local Sainsbury's. It's not a big shop but still classed as a supermarket. They are both being pulled in on overtime to stock shelves and are available as Unis are shut. They told me that they normally average 18k to 20k sales per day. Last Sat, Sun and Mon they averaged 36K per day which was more than they did at christmas.
Now I know when things go back to normal there will be a lot of pasta and instant noodles sitting in cubboards but they are also selling out of wine and beer and, without the need to drive to work in the morning, I bet that won't be leftover at home for long. Likely to see a rise in profits across all the supermarkets.
Yes, good profit coming. But Tesco, for instance has had a very small fall compared to the market. Under 10%
Tesco (LON:TSCO) is currently selling all it's Thai and Malaysian shops which should be around £8bn, about £5bn will be paid out as a special dividend. But WM Morrison Supermarkets (LON:MRW) which was up 10% today, is not down, it's up. J Sainsbury (LON:SBRY) was up over 12% today, Tesco (LON:TSCO) is lagging behind those 2 now.
While this is true in the short term, we don't necessarily eat more, in fact I would go far as to say some people will be rationing. So once calm has eventually restored will we not see a flatline to sales as consumer deplete their own stocks before heading out again?
I can see very good demand when isolated. For example it will be something positive for the kids to do and some social interaction. My kids school is planning what to do when the school has to close and has said that for child protection reasons they can not do lessons by video. Not sure if they will change that if the closure becomes extended. My daughters music tutor by contrast has said that he is used to teaching online and happy to do so. We will definitely continue lessons and would also want to continue supporting teacher and giving an income as we are fortunate to have a continuing income ourselves.
I know neither of these are small caps but it's interesting to see the trend amongst large caps to cut (or defer decisions on) dividends.
Ferrexpo (LON:FXPO) just announced good full year results but won't announce their dividend yet; Micro Focus International (LON:MCRO) cancel their declared dividend from last October today.
For income investors this is a problem that seems to be getting worse after William Hill (LON:WMH) cancelled their dividend last week.
cheers
Francis
.
£FXPO protecting their life blood, CASH, even if they do reduce or cancel it, they will certainly resume when normal times return. I am a holder.
My morning smallcap tweet: Mostly gloom
Sosandar (LON:SOS) Restaurant (LON:RTN) Connect (LON:CNCT) Oxford Instruments (LON:OXIG) Collagen Solutions (LON:COS) £G4M EVR Holdings (LON:EVRH) Revolution Bars (LON:RBG) Altitude (LON:ALT) Sureserve (LON:SUR) Air Partner (LON:AIR) Sportech (LON:SPO) Science in Sport (LON:SIS) Tribal (LON:TRB) Cello Health (LON:CLL)
Sosandar (SOS) warns sudden sales drop last week. Rev was up 203% in Q4 until then. Recent rev substantially weaker than expected with margins hit by increased customer incentives. Guides FY rev £9-9.3m and net loss £6.5-6.8m. Co will therefore substantially reduce its planned marketing spend in order to focus on repeat orders. No significant disruption to its manufacturing yet.
The Restaurant Group (RTN) sales were 4.5% up until recently. Now down 12.5% in recent 2 weeks, Guides material miss in H1. Models a 45% rev fall in H1, 5% in H2.
Connect Group (CNCT) trading robust but guides FY adj profit hit £2-2.5m.
Oxford Instruments (OXIG) cuts FY (end March) adj pretax guidance to £47m to £50m. Has net cash of over £50m.
Collagen Solutions (COS) guides FY loss materially greater than anticipated due to increased costs from a development and manufacturing contract which has taken longer than expected. Customers are delaying their investment decisions.
Gear4music (G4M) guides FY at least in line. Supply chains are currently operating as normal, has bought stock for several months sales, with additional stock on the way.
EVR (EVRH) 56% increase in average sales over last 7 days, expects trend of MelodyVR platform usage to continue. But expects a number of key events from pre-agreed and unannounced for 2020 to be postponed or reorganised. Halts MelodyVR push into Latin America and the Asia Pacific.
Revolution Bars (RBG) in very recent days has seen a decline in LFL rev. Expects trading to be very challenging for the foreseeable future. Net debt last week in line. Cutting costs.
Altitude Group (ALT) sells its UK based AdProducts for up to £0.8m. ALT trading in Jan and Feb strong although this has inevitably changed in recent weeks. No F/C.
Sureserve Group (SUR) AGM stmt. 1st few months of FY ahead of management expectations. Believes co well placed to continue to operate as normally as possible.
Air Partner (AIR) covid mixed effect, too early to judge FY impact - either positively or negatively - with any degree of certainty.
Sportech (SPO) very recent trading hit by postponment or cancellation sporting events. Co expects trading to continue to be materially impacted. No FY guidance.
Science In Sport (SIS) recent trading is in line. Sharply reduced revenue in Italy, China sales have recovered in March and co has received strong forward orders.
Tribal Group (TRB) expects existing projects to be delayed and award of new projects to be on hold. Sees significant financial impact. No numbers.
Cello Health (CLL) has currently not experienced any material client impact from covid. Client base dominated by clients which are traditionally less sensitive to short term changes in consumer behaviour.
Morning Graham
An interesting update from Air Partner (LON:AIR), clearly impacted by the current situation, but the company's evacuation expertise/capability is in demand as one might expect. Looks as if the dividend will be deferred until the Corana virus pandemic passes, which is sensible.
Thoughts?
There is word that those few plutarchs who don't have bizjets now rather fancy one. Who would in their right mind want to go through the public area of an airport now? Geneva on Monday was full of people who thought they were in a minefield. I suspect that the business of looking after bizjets will rebound sooner than other forms of air travel.
Hi, a huge thank you to Paul and Graham to keep going and providing an excellent service, analysis, opinion and insight at these very difficult times. I'm sure they must also be under a lot of pressure and stress trying to protect their assets. I hope they are both coping and that Paul is feeling better today. Keep up the good work....if you feel like it!
Thanks.
Dear Graham: £ANP (LON:ANP) has reported results - would be interested to hear what you think, if you have time. Thanks!