Small Cap Value Report (Weds 14 July 2021) - ZOO, AGY, FIF, SHI, NUM, PMP | Paul Scott

14th Jul '21 by Paul Scott

90 comments 10462 reads

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

Timing - today's report is now finished.

Disclaimer -

A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates & results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).

A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational views, whether bull or bear!

It's helpful if you include the company name or ticker within reader comments, otherwise some readers may not be aware of what company you are commenting on.

Agenda -

Paul's Section:

I enjoyed watching this webinar from our friends at PIWorld last night, with stock picker Richard Lennard. He always comes up with some interesting stock ideas, and I'm following up on his positive mention of recent float Made.com (LON:MADE) . Entertaining delivery too, he's quite a character! A lot of us did very well on Redde Northgate (LON:REDD) (I hold) at least partly thanks to his prompting last year.

Zoo Digital (LON:ZOO) - results from yesterday strike me as unimpressive. Very poor 21 year track record, of never really making any genuine free cashflow. Yet another placing done in April 2021. Why is this valued at £100m?

Finsbury Food (LON:FIF) (I hold) - this trading update sounds positive, but fails to explain the key point, whether the company is trading in line with expectations or not. I think in this case it's safe to assume it's doing OK, and by my calculations could be 7% ahead of market expectations for FY 06/2021. Looks good value on a PER of about 10.

Portmeirion (LON:PMP) (I hold) - H1 (quiet half) trading update doesn't explicitly state performance vs expectations (how annoying) but does imply that everything is fine. Nice turnaround underway here, and the valuation still seems reasonable. All-important H2 trading yet to come, but…

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turbo

14th Jul '21

Paul, Richard Lennard talking about Made.com (LON:MADE) on the PiWorld webinar definitely fired my interest in the company. Hope you are able to share your view once you've had a chance to look into it.

abtan

Saga (LON:SAGA)

I haven't looked into Saga (LON:SAGA) in any detail whatsoever, so apologies for my ignorance here (and my laziness in investigating myself), but my general perception was that that they have done quite a few fundraisings over the last 18 months.

I imagine there was a refinancing in there, presumably for a lower interest rates, which would make sense, but didn't they also do an equity raise about a year ago (well after lockdown 1) to keep the business afloat?

If they have been able to operate at breakeven since March 2020 and can do so for the foreseeable future, what was the point in doing any fundraising at all?

Or am I completely misunderstanding something?

Paul Scott

Great to hear, thanks Chris at HQ! :-)

Hi abtan,

All the information you need is here, my summaries of SAGA news releases, in readily digestible format, I hope :-)

Regards, Paul.l

The liquidity position at SAGA is bulletproof.

You got nearly everything wrong in your previous post, so I'll rely on my analysis of the facts, not yours, if that's OK.

timarr

The average cruise ship (I read) has 3000 passengers, so on those figures, 150+ people would have to be evacuated from the ship for urgent hospital treatment in some already over-stretched foreign country.

When I read that I didn't believe it but it's correct, based on the latest numbers we have for the delta variant.

That led me to looking at who is still vulnerable in the UK population. There are about 2 million over 50's who aren't fully vaccinated so if there are another 5% of the vaccinated group for whom the vaccines haven't worked there are still 3 million people at risk here.

With CV-19 spreading like wildfire in the younger population it's inevitable it'll work its way up the age groups over the next few weeks. I suppose the most at risk group are older people who don't believe CV-19 is real and are no longer protected by others social distancing, so that'll make for some very odd ICU interactions.

On balance I think travel and hospitality companies are still quite risky propositions in the short term. As for the longer term, who knows?

Roger Baron

I've always found Sellotape a workable alternative in emergency circumstances.

My comparator for Made.com (LON:MADE) (no position) is WestWing (WEW - I hold), a German-based company which essentially does the same thing, but on the European mainland.

I believe that WEW plan to expand into the UK shortly.

Looking at 2020:

Westwing's revenue was higher: 433EUR/c £370m vs Made's £247m.
Westwing is already profitable and cashflow positive, generating an Adjusted EBITDA of 50mEUR, with Capex for 2021 estimated to be 15m EUR (which includes buying vans and setting up their own distribution network, which should help margins/reviews going forward.)
Made.com had a negative Adjusted EBITDA for 2020, but it looks inevitable that this will be positive going forward given the company's growth.
WEW has an EV of £655m vs Made's £726m (£776m Market Cap - £50m cash), so WEW appears cheaper.

On points 1. and 3. I think WEW offers more value in this space, but as a holder I would say that.

That's not to say that I don't see potential in Made.com. Quite the contrary. I think it's a well-known brand and growth is inevitable. But I also think the market is going to soften this year after so much confinement, so if I was going to buy in, I would probably do so towards the end of the year, or at least after a few results have been announced.

GrahamScott,
You mentioned container costs going through the roof.

A few months ago I actually asked WEW IR's about their logistics expectations for 2021. They didn't reveal much, but they seemed to imply that prices have indeed gone up, but they weren't worried about it. I got the same impression from management from the WEW Investor calls I have listened into.

Purely for reference, in 2020 shipping was 9.77% of WEW's revenue. So even an increase in container costs on the Far East ---> Europe segment shouldn't have too much impact on the bottom line.

Cheers

GrahamScott

Abtan

A few months ago the expectation was that shipping prices were going to drop down to $4000 at the time they were around $10000. My company operated off the back of a major UK budget retailers shipping contract so we were on a 1000 container per year rate. According to our shipping agent he’s hoping to see rate drop by a couple of thousand over the next month but still nowhere near pre COVID rates. The issue is due to….

- Some ships still mothballed so lack of space

- Severe shortage of containers in China.

- Shipping lines not budging on rates. I’ve heard rumours that this last quarter they’ve made more money than they have for the last 5 years combined.

Maybe I should be looking at buying CMA CGM, EVERGREEN or MAERSK shares?

Thanks Paul

I honed in on your post in September 2020, shortly after the Saga (LON:SAGA) equity raise I was thinking about:

https://www.stockopedia.com/co...

It's insightful, but I still don't understand why the equity raise was required in the first place if cash generation was never going to be a problem.

I thought I had read an RNS about this raise, which didn't really give a convincing rationale for the decision, but I'm assuming there's a more detailed RNS out there that I haven't read.

Anyway I doubt I'll get time to look into this one in detail, and I was merely curious, so I will leave it there.

Mado82

Yes, but I think it could be a winner!

EVERGREEN MARINE share price a 10 bagger since container crisis started although a 10% drop today so maybe container prices are expected to drop

QARPY

Hi Paul, Jack. Is it worth adding Saga (LON:SAGA) ticker in the title of today’s report so that we can track the good and detailed (and entertaining) discussion for future reference?
If it is not too much trouble, this could be a great addition for future reports? Thanks.

NeilS

I must say I was astonished that they stated that in the future the business could be worth £1 billion. I would be delighted just to get back to the sp I bought at some years ago! Lol

RDHOWARTH

Yep, it can ride out any eventuality. Except the emergence of a new strain that postpones travel resumption beyond March 22 ... but that would never happen.

I guess we just agree to disagree. I meant no offence.

Rusty2

But this is for U.K. small caps.

Boon

Well.... always good to see management with big ambitions :)

In truth, there's a very small outside chance that Test Your Ad gains so much traction that it is the default ads measurement system used by all companies globally, to measure and benchmark performance. I buy the argument: so far, in marketing departments, only digital marketing has been thoroughly forced to have robust performance measurement. Most Above The Line (ATL) marketing departments has so far escaped the Performance scrutiny. But everywhere, CEOs and CFOs are demanding ways to measure marketing performance, whether ATL or BTL.

Kinda how like YouGov is now de-facto first (and possibly only) choice for measurement in many areas, and generates profits hand over fist.

Problem is - System1 has been a serial disappointer over the years. Is this time different?

Tombholliday

Zoo are forecasting that turnover will hit a 100m in less than five years having grown over a third in the last year. The share price is up some twenty percent since the last stockopedia comment

dhannaway58156

15th Jul '21

CMP/ Timarr, excellent comments, however is the 5% hospitalisation ratio in vaccinated people actually correct?

This is one of the few sources that I could find which relates to hospitalisations after vaccination in symptomatic individuals. I believe a great proportion of those who contract covid-19 are asymptomatic- this data doesn't include them in the analysis (which much skew it). Also only 166 of the symptomatic 14019 were hospitalised i.e. c.1%

It refers to 96% effectiveness against hospitalisation with Pfizer and 92% effectiveness with Oxford/Astra. I'm no expert but surely this means that only 4-8% of hospitalisation will occur in a vaccinated cohort . e.g. if 10% (I've got no idea if this accurate) of unvaccinated people need hospital intervention then in the vaccinated cohort then 4-8% of 10% should end up in the hospital (.4-.8% on average) or 4 to 8 people per 1000.

6 (on avg) people at sea in need of hospital treatment clearly isn't ideal. So we're still left with the same conclusion which is widespread lockdowns onboard to prevent that outcome (or worse if everyone is over 65). Not ideal at all.

To put myself in the position of the cruise ship operators I would counter that everyone is tested pre-boarding, they wear masks when in circulation and on some cruiselines they are all double vaxxed so likelyhood of breakthrough covid in enough passenger saturation to yield hospitalisations is vanishingly slim.

On balance though given the international docking risk, I agree that international cruising will likely remain off the cards until the current peak crests and cases are low in the UK and welcoming destinations.

-----------------------------------------------------------------

I may have got the wrong end of the stick here so please send across any links you may that are relevant.

Mentioned link:

https://khub.net/web/phe-natio...

simmsc

9th Aug '21

I'm stake building every day in Made.com. Most investors appear to not be understanding how they operate. Disruptor, D2C model (thereby able to offer better value to customers as many middle men are being cut out), capital light business. They raised 63m up until 2020, created a 315m revenue business with that and still had 40m cash left in the bank at the end of 2020 (which is nothing but amazing). Returns rates are low at 6%. They are already profitable (accounts here don't show that because income had to be deferred due to delayed lead times). Rather than a 3m loss, they have actually made a 5m profit (so they are already EBITDA positive). Further unwinding of deferred income is coming into affect which will boost revenue more. They are 63% (!) up on sales in Q1 2021. Highest margins in the sector. The last time i was so excited about a UK company is when i discovered Reach PLC in April 2020. I have a research piece that was released on 8th August and the figures are mind boggling.

Small Cap Value Report (Weds 14 July 2021) - ZOO, AGY, FIF, SHI, NUM, PMP

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