Good morning from Paul & Graham.
Agenda -
Paul's Section:
Various Eateries (LON:VARE) - this share slipped through the net in June, on a busy day, so I've gone back to look at its last interim results. With the share price in freefall, is there a value opportunity for shares in this expanding clubhouse style bar/restaurant group? The short version is no, not really. It's still unproven (loss-making to date), and almost all the cash pile has come from a related party loan. So I think there are better alternatives in the hospitality sector (e.g. Brighton Pier (LON:PIER) which reported positively last week), and Revolution Bars (LON:RBG) (I hold) which reported positively yesterday, and is similar market cap to VARE but much bigger, profitable and debt-free.
Greggs (LON:GRG) (£2.18bn at 2131p) [no section below] - not a small cap but… I had a quick look at interim results from this on the go food retailer yesterday. It’s a good business, and shares have lost a third of their (over-priced) peak 2021 value, and now look more sensibly priced (not cheap though). I’m mentioning it for read-across to other retail/hospitality shares. Sales shot up 27%, but profits were only flat against last year. This is due to “the re-introduction of business rates, increase in VAT and higher levels of cost inflation”. FY 12/2022 outlook is in line with expectations - which is EPS flat vs 2021. If one of the best operators can only achieve flat profitability against all these cost headwinds, and withdrawal of large Govt support, then what chance do lesser hospitality/retail businesses have? Hence I think it’s best to assume that profits remain under pressure for this sector for 2022 and 2023. Providing forecasts are set realistically modestly, that’s fine. But racy forecasts expecting big profit growth could be an accident waiting to happen. It’s like a minefield at the moment, we have to pick our way through very carefully.
Graham's Section:
Goodwin (LON:GDWN) (£213m) - this family business reports full-year results that show a small improvement over the prior year, but are held back by rising energy costs. In addition, the company’s mechanical division suffered from volatile energy and commodity prices (fortunately, the company was able to renegotiate contracts for this division). The outlook statement is unusually strong and is based on some exciting developments…
