Small Cap Value Report (Wed 23 Sept 2020) - LOOP, SDI, ZOO, TEG, CALL, JOUL, W7L

23rd Sep '20 by Paul Scott

77 comments 10243 reads

Good morning, it's Paul here with the SCVR for Wednesday.

Timings - I think this is going to take most of the day, so I'll say finish time of 5pm but there should be plenty up by official finish time of 1pm. I have to take a longer lunch than usual, as the dogs need to be taken to the groomers for noon.

There are lots of trading updates today, so I can't cover everything. It's really helpful when readers who have a good understanding of particular companies post your own summaries of their results in the comments. Here are the ones that look most interesting to me today;

Agenda

Loopup (LON:LOOP) (I hold) - Half year results - this follows a very strong recent trading update, hence why it's top of my list.

Sdi (LON:SDI) - Trading update & IMC webinar

Zoo Digital (LON:ZOO) - AGM Statement

Ten Entertainment (LON:TEG) (I hold) - Half year results, 6 months to 28 June 2020

Cloudcall (LON:CALL) (I hold) - Interim results, 6 months to 30 June 2020

Joules (LON:JOUL) - Trading update

Warpaint London (LON:W7L) - Interim results

Loopup (LON:LOOP)

Share price: 228.5p (up 4% today, at 08:36)
No. shares: 55.4m
Market cap: £126.6m

(I hold)

Half Year Results

LoopUp Group plc (AIM: LOOP), the premium cloud communications provider, is pleased to announce its unaudited interim results for the period ended 30 June 2020.

The financial highlights below look pretty stunning, but remember that the market has already been given these numbers, in a previous trading update which I reported on here, on 16 July 2020. That's worth revisiting actually, because I point out things like capitalised development spending (which flatters EBITDA).

There's also a H1 seasonal bias, and the company has benefited from the work from home ("WFH") trend. Worries that WFH was temporary have receded since yesterday's U-turn, in that the Govt is now telling people who can to work from home again, reversing what they told us a few weeks earlier that it was time to return to work.

LOOP has carved out a niche for high security conference calling. It is widely used by firms of lawyers & accountants.

Looking to the future, where I…

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Maddox

23rd Sep '20

GAMA are very well established in the Cloud telecoms space are on a p/e of 29.5 versus Loopup (LON:LOOP) on a prospective p/e of c. 10 (being somewhat more optimistic than the Analysts on the H2 eps). So looking comparatively cheap.

ken mitchell

Hi barnetpeter.

I still hold Revolution Bars, and now at big loss with share 50% below the Open Offer price where I applied for, and unfortunately got, more on top.

If the following is wrong then, you, Paul or someone might explain why; but wasn’t it a big mistake not having a lot of their bars open during the Eat Out to Help Out bonanza that others in the sector cashed in on big time? And have they compounded that mistake by extending the half price offer, but at their own expense? That surely means they are currently trading for little or no profit, or even at a loss. And now with closure at 10pm they are facing that hurdle too.

There are no Revolution Bars near where we live. I’ve looked at reviews for a number of them. Food seems very popular overall. But what a big and wide ranging menu. Is that sensible or would a smaller but still good quality range be more cost effective? And at several branches very slow and inefficient service seems frequent along with a couldn’t care less attitude from some staff.

So how competent are Management? After all they somehow messed up that agreed bid from Stonehouse around £2. That takes some doing.

Can they survive? If they can and if covid is over the worse soon, or vaccine quite near, chance of share going up 3 times or more? Chance of a low ball bid? Or is it more likely Revolution will go bust with any potential bidder waiting to clean up then, but after shareholders wiped out?

I haven’t held on to a share all the way to zero for many years. Beginning to fear Revolution could go that way.

btw....I also hold Saga. Can’t believe the share price is now below that (reduced from 15p) 12p Open Offer price! It’s now cheaper to buy in the market than take it up so presumably Roger De Haan will end up with an even bigger stake.

Surely SAGA is less likely to go bust than Revolution Bars, as their insurance business should help them survive even if cruises cancelled yet again and their main travel business also taking further big hit. They rejected an indicative bid at 32p. Could that bidder come back, albeit at a lower price? Could Saga go private, but again at a very low price? Or, my preferred outcome, once covid over would SAGA business, now with Roger De Haan back, recovering big time and share multi bagging.

Paul Scott

It's worth pointing out that Revolution Bars (LON:RBG) re-opened sites with an 11pm closing time already. So moving to 10pm now is definitely going to hurt, but maybe not as much as people might think, if they wrongly believed that the company was already trading late.

Also worth reminding people that the recent trading update indicated that performance was ahead of expectations given in the fundraising scenario.

I'm really surprised the price has fallen to just 10p, given that the situation is hardly any different to when the fundraising at 20p was successfully completed.

No, I don't follow £NAHL or Frenkel Topping (LON:FEN) , sorry.

sunny1978

This comment has been moderated

kgb1953

Not really a basis for investment is it?

Dave_17

I'm also in the industry and agree with your rule of thumb. Microsoft are actively avoiding the Telco market and keeping away from trying to dominate it. Could be a wise long term move (low margins) or the missing a huge opportunity (become biggest b2b Telco in the world). Either way they have set Teams pricing to be uncompetitive and encourage competition via direct route. I see Loop as an international Microsoft partner with a successful focus on law firms. Can't see much else really. You could argue Teams will erode some of their legacy revenue streams. Also 2-3 years down the road after all the hard integration is done, contract resigns will be a commodity sale with lower margins.

Gromley

Revolution Bars (LON:RBG)

Paul, I hope you'll take this in this spirit intended - to challenge your thinking and encourage you to.

I think you are substantially under-estimating what has changed (and perhaps anchoring on your initial investment decision , which might have been right but unlucky?)

Even if they have already been closing at 11pm; it's not just an hour they are losing.

On peak days that last hour is the most lucrative for drinks sales. Maybe people will just go out an hour earlier and get steaming by 9:30 rather than 10:30, I'm not sure. If though that does happen, then there would likely be a further restriction applied. Also (in England) it is 'everyone out and doors closed' by 10pm so that's equivalent to last orders at 9:30. (I'm sure you remember double or triple rounds at last orders before licensing was liberalised!)

On food (I'm not sure how important this is to RBG) there is a concern that maybe the earlier close means only one rather than two evening sittings.

So from my view, there has been a profound change in the last month.

I do think that Pubcos and restraruants, will become a massive value opportunity at some point - maybe that is now, but I am not convinced. (FWIW I think this weeks virus response will have very little impact, so for better or worse there is potentially more to come)

Simon Rowan

Not so much terrified of another lockdown as lack of confidence in the conflicting advice. Two bods from Oxford, one saying forget lock down and the other saying more stringent lockdown. Just listen to some of the poor people with businesses to run who are in utter despair, and then Boris comes out with patronising tosh 'this government will put its arm around the uk.' Its fine for corporates and I'm sure TEG will be ok, but the overall perception for unlisted small businesses is just awful and I'm so glad and lucky not to be amongst those ranks anymore.

on reflection I didn't highlight that they have their own network and international agreements with telcos. Whilst not unique, that could be their niche as most competition in this space would be the big international players who are hardly cheap, focused or flexible. So probably a better opportunity than I painted above.

Robert W

My problem with £Loop is the competition from Microsoft Teams. I am no doubt missing something (I usually am!) but in the enterprise space, at least, the majority of organisations have Microsoft 365 and get Teams as a free add-on (that is the deal my org has so I assume that is generally available). Why would you therefore take Loopup? Is it mainly smaller orgs with non-MS stacks? Does it have better security? This https://www.gartner.com/review... indicates very similar capability.

Tombholliday

The way it works is you pay Microsoft for basic Teams packages then have the option of buying the "phone system" (calls to/from normal numbers) from either Microsoft or direct connect supplier. I could name >10 UK direct connect providers without much effort. Not all direct connect providers will have LoopUp experience as a Microsoft partner but Gamma supply direct route and are targeting Microsoft resellers to resell Gamma service.

davidjhill

But Gromley you are missing that management said all this as part of the raising. They said the after 11pm trading was 20% of profits. They also said that this meant they needed to work harder to spread some of this into the rest of the day, focus on food and other brunch type initiatives. They have now said they are trading ahead of that base expectation. There has been no negative change apart from perhaps your understanding of how the business operates (ps I don't mean that rudely).

The article in the press today was typically lazy journalism in my view. It said Revolution Bars (LON:RBG) would suffer most from a 10pm close as 18% of their profits come from the last hour of trading. That isn't quite factual. The last 18% of their profits came from late night opening (rounded up to 20% by me above). They have suffered that already and mitigated some of it. Unfortunately readers of said article don't do research properly, take it as gospel and sell out.

Now, a 10pm closure time is likely to worsen trading but may actually have minimal impact. There is a school of thought that people will just start earlier and potentially drink more quickly as they know timing is restricted. They can't go elsewhere as no-one is allowed to open. So whilst I accept that a 10pm close is unlikely to be positive there is a lot of nonsense being spouted about the actual impact of 11pm to 10pm and seemingly much of it made up!

Interestingly as a little side note I am told that statistically most cases of Covid being passed on is between friends and families in the home. This actually makes some sense - hospitality venues are covid secure, homes are not. So actually the Government might have been better banning visits between households and telling them to go to the pub or restaurants instead. Kill two birds with one stone - reduce R and encourage hospitality spending/preserve jobs..........another opportunity missed????? oh well............

david,

You are probably more engaged with the detail than me, as I haven't done a detailed review.

I had not realised that RBG had said that 18% of their profits came after 11pm - from my exerience of the industry (quite old and dusty now) that seems quite low. I would be interested in how they classified "profits" there - the key metric imho would be gross profits less variable staff costs ; if they were looking to put a positive spin on the situation they might have spread the rest of their costs evenly across total opening hours.

I should be clear that I do not know the answers here, but it does seem to me that things have profoundly changed in the last the month. We have gone from, limited re-opening and a path to business as usual to ; renewed restrictions and a total pub shutdown a quite likely prospect.

IMHO RBG and any other pubco have become significantly riskier propositions in the last few weeks.

Phuntt

David, I don’t think the market is reacting to the earlier closing time so much as the six month estimate on timelines from the prime minister and the obvious threat that if this worsens, pubs will be the first sector to face further restrictions. While early closing hurts, certainly within the industry this Six Month Timeline is what is causing most concern to both myself and people I talk to for three main reasons:

1) it brings home that there is no clear end to this. That should have been clear before but for whatever reason it wasn’t getting through. Remember, pubs will not be deemed a safe environment until jabs are actually distributed and that will be at least 6 months away at this point.

2) that timeline brings us through the Christmas period - as I pointed out before, this is the pubs main period, estimated to be when they generate over a third of their trade (and for a drink focused venue like RBG, more of their profits). Coupled with the limits on people sharing tables from different households. BJ just cancelled Christmas

3) while I’ve no doubt they are improving their food offering, this is no simple fix. Competition is fierce and consumers do not naturally associate them with good food.

I don’t have any position on RBG but everything I see here makes this share extremely risky at this point. What do you do as a pub if furlough is gone at the end of October and you are leaking money quickly? Or more pertinently what does your bank do? Rishi has to decide if he is saving the industry (and jobs) or if he can’t - 20% of Whitbread’s staff was the tip of the iceberg. Pubs cannot open their doors and trade profitably with the current restrictions.

spglet

Thanks for your insight. Interesting.

Caper4

24th Sep '20

I to agree that the change in trading hours will not make a significant change in revenue. However their are many who will be put off going at all and the prospect of this continuing for another 6 months will be the death knell for many unless there is an extension to the furlough scheme and/or some other support such as a VAT freeze .
It’s all a ridiculous overreaction and another example of poor leadership .
By all means protect the vulnerable and insist on them being in lockdown,but allow the majority to go to work and live as normally as possible but ensure they do not visit the vulnerable . The latter to be helped by social workers etc organising shopping/medical supplies etc. Of course a lot of the latter was done by the community in any event,at least where I live.
Down here in Cornwall life goes on as normal. The place is packed and it’s impossible to get a decent restaurant booking for a month or so. Little evidence of any Covid paranoia apart from the face masks in shops .

grout123

excellent post

Richard Goodwin

Frenkel Topping (LON:FEN) The RNS confirms that they will sell on the non-expert witness part

Small Cap Value Report (Wed 23 Sept 2020) - LOOP, SDI, ZOO, TEG, CALL, JOUL, W7L

Loopup (LON:LOOP)

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Paul Scott

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