Small Cap Value Report (Weds 1 July 2020) - TPT, HMSO, LTHM, KIE

30th Jun '20 by Paul Scott

79 comments 8677 reads

Good morning, it's Paul here, with the SCVR for Weds. Please feel free to leave your comments from the 7am start of the RNS, whilst I write up the main report throughout the morning and early afternoon.

See the header above for the company announcements I'll be writing about. I generally only respond to reader requests if you put up some compelling reason why the announcement is worth me looking at. I can't cover everything single-handedly.

To get you started today, here's the link to yesterday's SCVR, which significantly exceeded market expectations with 10 companies covered in total! I added 5 more after lunch, covering: STAF, WGB, TRAK, SYS1, and TST, in addition to the other 5 companies I wrote about in the morning (VNET, D4T4, SOLI, DRV, COG).

Estimated timing - a medium workload today from the RNS, so I should be finished by 1pm or a little later.
Update at 13:21 - today's report is now finished.

Lookers (LON:LOOK) - shares suspended due to failure to publish 2019 accounts by 30 June. I might be mis-remembering, but I thought the company had secured an extension to the publication deadline? Maybe not.

Malvern International (LON:MLVN) - shares resume trading today, after a near-death experience. Small fundraising recently secured. New CEO brought in. Everything will hinge on how it can re-start operations. Very high risk, I'm not going to revisit this one, having got it wrong previously.

Walker Greenbank (LON:WGB) - a quick update. A NED has bought £19.4k-worth of shares. The CEO's husband has also just bought £20k of shares. That's helpful.

Also, Gromley and I were swapping our fag packet forecasts yesterday, in the comments section. I've now got an up-to-date broker note, which suggests a loss of £(5.5m) for FY 01/2021. This is based on a revenue assumption of -30% for the full year, which seems overly cautious to me, given that it was -35% in the first 5 months during covid. Although thinking about that, covid would have probably only affected about 3 out of those 5 months, so sales were probably down a lot more than -35% in April & May. Anyway, we have a range of forecasts, with a broker at £(5.5m) loss, Gromley at breakeven, and me at a £(3-4m) loss.

Topps Tiles (LON:TPT)

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RDHOWARTH

1st Jul '20

ACouncil

Good question - I am desperately short of info re IL markets. I used to be lucky enough to sit next to a bond team who I could just go and ask. Anyway, I use the ishare index linked fund return which is 14.9% and designed to track the IL UK Govt market over 5 years. Most of the other fund incl Vanguard are similar although a little lower - between 10% and 15%.

I pick these up from fund analysis on AJ Bell platform which i find pretty good. If Im making a mistake please let me know.

LongGame87

Amur Minerals (AMC)

This is my Micro Cap choice and a no brainer multi bagger....

See below article....

Amur Minerals - (LON:AMC) - The Start of the Final Rise! (Nickel Mining)

https://www.stockopedia.com/content/amur-minerals-lon-amc-the-start-of-the-final-rise-nickel-mining-628718?order=createdAt&sort=desc&mode=threaded

There are a few more before this latest one if interested....

Again DYOR and GLA.

peterthegreat

Thanks IncredibleMoses Leroy for your comments on a possible strategy being considered by your family's restaurants, this was very interesting. Strategic reviews must be going on across the leisure sector as companies seek to respond to the phasing out of the furlough scheme as reality hits home. I just had an email from "Steam Dreams" (which runs steam engine drawn trains with meals on board) asking a range of questions to customers to determine what COVID-19 induced changes would be acceptable or unacceptable to people considering future bookings. They proposed that future passengers should sign a statement saying that they had no symptoms of COVID-19, nor had any contact with any infected individuals before they would be allowed to travel. They also asked whether passengers planned to go ahead with their existing bookings which I refused to answer as this could be interpreted as a cancellation which would void any rights to a full money back. Incidentally, I am still waiting for a refund of a cruise booking with Carnival which Carnival said would be with us two weeks ago. Carnival has refunded just 50% of the amount owed which suggests to me they are in a desperate position and I note in the media that they are selling ships. I am now taking legal action against the travel agent in order to obtain the outstanding money owed as the payment for the cruise was made to the agent, so they have a legal obligation to provide the refund. I imagine many travel agents will pick up the tab in this way if operators go bankrupt or refuse refunds and I guess this will include where foreign hotels go bust. I wonder if OnTheBeach is exposed to this problem or whether their customers pay direct to the hotels booked?

Man of Steel

I assume you meant to post this on one of the advfn boards rather than here ;)

Gromley

Thanks for the update on the broker forecasts for Walker Greenbank (LON:WGB) Paul.

I agree with you that the forecast of a 30% YoY reduction in revenues seems overly pessimistic, implying virtually no further pick up in sales for the rest of the year.

For a further "fag packet" view of their revenue profile during the first 5 months - you're right that up until lockdown Revenues should have been largely unaffected. This might suggest that revenues were down by c. 75% at the height of lockdown recovering to -31% in the last 4 weeks.

My initial thoughts yesterday were that the -35% Revenues for the 5 months was better than I expected but that the -31% for the last 4 weeks was not as good as I hoped. On reflection I think I have flipped my view on that, but getting an update on latest trading at the end of July.

Anyway - if the revenues do prove to be 30% down on the full year, that would be an extra nearly £7m off the gross profit figures we discussed yesterday so the broker's view of a FY loss of £5.5m suggests they are in the same ball park as me on the Opex reductions achieved.

Disappointingly, it does not look like the company have made a recording of the analysts call available, however at least they have published the slide deck

Not too much leaps out at me from the presentation. Although there are a couple of useful waterfall charts (#8 & #9). Also an interesting slide (#16) on the customer needs they are addressing - almost incomprehensible without the spiel that no doubt accompanied it - but I am at least reassured that they do recognise that they are a consumer business.

(I seem to recall I had "a bit of a rant" a few months ago when they described themselves as B2B.)

Tommy H

Hi they released an update a couple of days ago about the open offer take up, hopefully the following link works

https://www.stockopedia.com/share-prices/revolution-bars-LON:RBG/news/revolution-bars-result-of-open-offer-urn:newsml:reuters.com:20200625:nRSY1427Ra

Zipmanpeter

Re Topps Tiles (LON:TPT) 's prospects being undermined by increasing incidence of "glass splash backs in kitchens and large panels for use in showers" replacing tiles, I would also add that online is also becoming more significant as people grow in confidence in making big ticket items online.

Now you can easily get a sample tile through the post plus very good online visualisation tools so the value the value of Topps national chain of retail stores is decreasing.

To be fair, this is why they have pushed into the commercial side in recent years that is +/-50% of the market - the only problem being this is only a few % of Topps sales at present.

I see it as becoming a value trap in Stockopedia terms.

Paul Scott

Good points, thanks Gromley!

I'll check out the Walker Greenbank (LON:WGB) slide deck, thanks for the link.

Smashing, thanks for that sharw! Very useful points & link.

simoan

I don't buy this on-line visualisation thing at all. Anyone that has tried to find tiles for a kitchen or bathroom will know that the light in a specific room can make a massive difference to their appearance. Without seeing sample tiles in place in the room itself, you are likely to end up with a disappointing end result. I think there is still a lot of mileage in retail space for certain businesses and Topps Tiles strikes me as a good example, where people want to see the product in the flesh and need help and advice in selecting a suitable product to meet their requirements.

All the best, Si

£TPT - I agree the majority of the consumer tile market remains in this physical shop space (and that some physical shops will continue to do well). But if Topps are the market leader in stores and even 5-10% of the market has migrated on line (I am assuming this is true but have not found good data to support the %), this disproportionately affects them.

Automatic quotes online also puts ever more pressure on pricing. Unique, only-at-Topps lines instore only partially offsets this pressure.

Finally, in my recent and personal experience, the colour/shine of tiles is only really visible and 'true' when they are ALL the tiles up in your own room. The light in the showroom is very different to my poorly lit bathroom for example and varies on the weather outside.

Mark Penney

thanks Tommy

2ShedSam

LOL as long as you get your money back... Legal obligations blah, blah, blah. On the one hand I don't blame you, on the other hand individuals demanding money back ultimately ends up with firms going bust and people without a job. Don't know what the right answer is but not sure this is it.

mark1308

2nd Jul '20

Paul , cant give you uptick today , the tally says 185 as I type but the mouse wont allow me to plus 1 ???? Anyway as always many thanks for your fine efforts.

timarr

I imagine many travel agents will pick up the tab in this way if operators go bankrupt or refuse refunds and I guess this will include where foreign hotels go bust. I wonder if OnTheBeach is exposed to this problem or whether their customers pay direct to the hotels booked?

It's complicated and depends on the way the contracts are structured. However, if you booked with a card then the ultimate recourse is to your card issuer who is obliged to refund you. I won't go into the technical complexties but the issuer will then seek reimbursement from the operator's bank.

If you try and get a refund and they refuse to play ball I'd go to your bank pdq - just make sure you have some written evidence that you've tried to get a refund and then refuse to go away until the bank actually does something (they'll often try and fob you off back to the operator, but will eventually give in).

The whole travel industry model is broken - the reason refunds are so hard to get is that the operators have already spent the cash on stuff like fuel, hotel rooms, etc. They simply don't have the money to pay everyone back and, for the time being, regulators are turning a blind eye rather than forcing the issue and seeing lots of companies go bust. I have some sympathy, but it does make most of the sector univestable. What's the point of a safety net that only works when you don't need it?

I do, however, hold On The Beach (LON:OTB) - and as they make clear in their various filings their model sees them hold most customer cash in escrow rather than forward paying it to airlines and hotels:

The Group remains the only listed UK travel business that operates a fully ring-fenced customer trust account in which customer funds are held until the point of travel. Therefore, the Group does not rely on cash received for forward bookings to trade. Monies that have been received for holidays that are cancelled by a closure of airspace can be repaid to customers in cash with limited impact on the Group's working capital.

(From the recent interims).

This makes them a survivor come what may and if you believe that the industry will eventually limp back towards some sort of normality then they're about as good as you can get. Put it this way - if I was so inclined to go on holiday overseas then they'd be my first choice.

There are other reasons for liking On The Beach (LON:OTB) - the low capital costs associated with running a largely online business and their ability to rapidly flex their discretionary costs. For instance, they stopped advertising as soon as they realised no one could travel. This means they have an innate advantage over a lot of competitors, quite a few of whom will go under.

The whole online travel agency (OTA) market is fascinating - it includes the likes of Expedia, Booking,com, etc - and can get quite fractious when it comes to reselling airline tickets (although I reckon the airlines will take any business from any source when things reopen). But OTB have carved out a niche and established brand recognition - and they don't don't have a cohort of highly p'd off customers seeking refunds who'll never use them again.

I mean - what's not to like? Well, other than the fact that no one can fly anywhere at the moment ... :-)

timarr

john652

Hi Timarr,

There was previously a court case by Ryanair looking to prevent On The Beach (LON:OTB) etc from reselling airline tickets and therefore stoping OTB customers from booking the whole holiday in one place/one go. Id forgotten about this when i bought back and your comment above reminded me, do you know if thats still active, i don’t recall mention of it recently.

There was previously a court case by Ryanair looking to prevent On The Beach (LON:OTB) etc from reselling airline tickets and therefore stoping OTB customers from booking the whole holiday in one place/one go.

Yeah, I looked at this a while ago, As far as I can tell Ryanair sued everyone and, eventually, most of the OTA's just quietly dropped them. Underlying that is that Ryanair wanted to become an OTA themselves but personally I wouldn't buy a cute puppy from Michael O'Leary if I could avoid it.

It's difficult to know how material this is but I'd have thought the airlines would be happy if anyone was booking flights right now.

Great post Timarr. Don't always agree with them but usually well crafted and insightful. OTB does appear to have the hallmarks of being a beneficiary from the huge dislocation taking place within the travel industry. My only worry with stopping of all advertising is dilution of brand awareness that had started to build and how quickly this can be recaptured. It was still a relative newcomer to the market and there will still be some big well funded players whose misdemeanours will soon be forgotten.

A_Private_Investor

As an investor in OTB, it is unusual because monies from clients goes into what is effectively a 'Trust Account' which is operate from the OTB business account, but which OTB administrate. They then release the funds from this to the airlines, hotels etc. at set dates. This should mean that the money in the 'Trust Account' is there for refunding rather than has been used elsewhere in the the business.

It's why OTB's turnover is so small - £100+m last year - given the number of hols it sells and, compared with other companies, its operating margin is so good i.e. because a lot of the money it takes never actually goes through OTBs accounts.

personally I wouldn't buy a cute puppy from Michael O'Leary if I could avoid it.

And that is the challenge. Ryanair and O'Leary are fantastic operators who invariably end up with the only "cute puppies" available. On many levels I hate them as they always outsmart me but I keep coming back for more. Apart from occasionally feeling a little ripped off, I have never had a bad A to B experience. Even my last flight with them to Oslo (Airport as near to Oslo as Heathrow is to Manchester) was a wonderfully joyous & efficient experience. (2 hour train journey to the centre of Oslo was fantastic). Will I use them again? Probably, will I feel a little ripped off? Probably. Will there be an alternative that won't likely go into administration, offer reasonably convenient departure/return take off time, fly direct from a reasonably local airport and for an affordable price? Probably not. Michael will be the only one offering the cute puppies...

Small Cap Value Report (Weds 1 July 2020) - TPT, HMSO, LTHM, KIE

Topps Tiles (LON:TPT)

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Paul Scott

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