Small Cap Value Report (Weds 17 June 2020) - BOTB, DLAR, BOO, DOM, WIN
Good morning, it's Paul here with the SCVR for Weds. Please see the header above for company announcements that have caught my eye.
Estimated time of completion: 1pm
Edit at 13:04 - we're mostly done now, but I'm hoping to add a few more brief comments later.
Edit at 15:57 - I've added a bonus section on Wincanton. Today's report is now finished.
I'm scraping the barrel now, in terms of pre-prepared content, but have a couple of sections which might be of interest, as follows;
AIM Inheritance Tax relief
This is a valuable tax relief, which drives some investors into owning AIM shares. If qualifying shares are held for 2 years, then when the owner dies, there is no tax to pay. There are a number of very good fund managers who specialise in this field, that I have come across in my travels, and been impressed with, including Fundamental Asset Management, and Charles Stanley. They select the good quality companies on AIM for their client portfolios, not the speculative junk.
Recent press reports suggest that this tax relief could be a target for the Govt, as soon as this autumn, as a way of raising more tax, in a way which will not hurt the average person in the street.
The problem with this, is that if such a policy change occurs, it could reverse the fund inflows enjoyed by IHT tax planning portfolios. They have been repeat buyers of the same stocks, when funds were coming in, arguably pushing up prices quite high. Clearly what might happen if that goes into reverse, is that there could be relentless selling of the same stocks, to meet redemptions. Maybe not immediately, as the relevant fund managers could point to their strong performance, and suggest clients stick with them. Or there could be mitigation measures re tax, e.g. moving shares into a trust. Who knows? But it worries me as a potential downside catalyst for the better quality AIM shares, which could see a headwind if IHT tax relief is scrapped. Hence why I’m flagging it, as a potential risk to be aware of.
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Rent furlough scheme?
Meetings were apparently held last week, between the hospitality sector, and the Govt. A scheme has been mooted for the Govt to intervene with top-up payments towards rents, for businesses which were forced to close, such as bars & restaurants. If agreed, this could provide a badly needed boost for closed pubs/cafes/restaurants, etc. I think the Govt clearly needs to act, to prevent millions of jobs being lost imminently. The suggestion is that tenants pay one third of the rent, landlords waive one third, and the Govt picks up the other third. That makes complete sense to me, this needs to be done asap. IF it is, then expect a nice boost for the hospitality sector. Although I’m not sure if this will be agreed or not.
Covid cases
All eyes are on China again, as it closes schools in Beijing, due to fresh covid outbreaks. A friend points out to me that the cases are small in number. But we saw what happened last time. It's now all about containing fresh outbreaks.
Medicine breakthrough
Medical experts are telling me that the trial results in Oxford, for dexamethozone Dexamethasone (a mild steroid, cheap and widely available) are a major breakthrough in treating the more severe hospitalised covid patients. This has apparently greatly reduced the death rate, in recent trials. Marvellous news, and let's hope further breakthroughs are achieved.
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Best Of The Best (LON:BOTB)
Share price: 1400p (up 12% today, at 09:06)
No. shares: 9.38m
Market cap: £131.3m
(I'm currently long)
Review of Options under Formal Sale Process
Best of the Best plc runs competitions online to win cars and other prizes.
The company has received;
...very preliminary expressions of interest which could potentially lead to an offer or offers being made for the Company.
How interesting! There's an obvious rationale for a larger gaming group to buy BOTB, and then feed its existing customer database into the company, hence scaling it up rapidly. BOTB has about 2 decades of experience in this niche, and considerable brand credibility from years of operating from UK airports - people still remember this, even though the company gradually went online-only over the past few years.
The Board of BOTB has confidence in the long term prospects for the Company but believes that it is in the best interest of all stakeholders to explore possible strategic options for the business (including a potential sale) by commencing a "formal sale process"
My opinion - I think we're in a nice position here. There's possible further upside if one or more bidders put in an offer to buy the company. Management has a controlling stake, so they won't sell it on the cheap. Their track record is such that I think we can trust them to look after small shareholders, as they have in the past.
If no acceptable bids are forthcoming, then we have very strong profit growth to look forward to, and the share price should continue rising long-term.
A cynic might say that the recent big hike in FY 04/2021 forecast earnings might have been at least partially motivated by maximising the sale value of the company? That said, the company has overshot forecasts 5 times in total in the last year, so clearly the previous forecasts were far too pessimistic, and didn't reflect the traction the company is gaining with its digital marketing. Plus other growth initiatives.
Forecast EPS is 70p for this year, so at 1400p we're only on a PER of 20 - arguably still cheap for a company that's just reported doubling its profit, and has extremely high operational gearing with more growth underway.
It's tempting to bank some profit, but I think it's worth 2000p+, hence logically I feel it makes sense for me to sit tight. Obviously that's just one person's opinion, other investors may be happy to bank profits. Your money = your call!
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De La Rue (LON:DLAR)
Share price: 151p (roughly flat on the day, at 09:30. Spiked down at the open, now recovered)
No. shares: 104.0m existing shares + 90.9m new shares = 194.9m
Market cap: £294.3m
Results and Fundraising
The links immediately above are for the 2 separate announcements.
Fundraising - this is probably more important, so I'll summarise the key points I noted down when reading the RNS;
- Raising £100m (pre costs) at 110p per share (a 28% discount)
- Underwritten, so the company will definitely get the money
- Firm placing of £50m, plus an open offer/placing of £50m - hence existing shareholders cannot complain too much about the dilution, given that they can also participate through an open offer (a good thing)
- Dilution is considerable, with an 87% increase in the share count - disappointingly high dilution in my view
- Bank facilities extended to Dec 2023 - so clearly the bank (very sensibly) linked continued support from them, to a fundraise from shareholders. We're seeing a lot of this at the moment - hence highly indebted companies are effectively being forced to raise fresh equity.
- Pension fund agreement reached to lower the deficit recovery payments to £15m p.a. for the next 3 years, then rising to £24.5m p.a. . I hadn't realised the scale of the pension scheme deficit. This has risen to an estimated actuarial deficit of £190m post-covid. That's a massive number, and clearly the equity doesn't look so cheap once you treat the pension scheme as part of net debt.
- Directors - taking up full open offer entitlement, plus £1.2m in the placing - a good sign of commitment & confidence, in my view
- Cost reductions - these are deep, and will be largely complete by Aug 2020. The group has been genuinely transformed recently, and looks a much better investment proposition than before.
- Outlook good - current year profits "largely underpinned" by contract wins & cost cutting
- Sales pipeline - some significant upside from possible large bank note contracts
- Order book strong, and only limited disruption from covid
- Turnaround plan is targeting 9% p.a. revenue growth, and strong operating margins in the mid-teens %, and growing - sounds excellent to me
- Sustainable divis possible, once cash outflows relating to capex & restructuring have been done
- Net debt - adopting a policy of limiting future net debt to 1x EBITDA. This is very sensible indeed, and I encourage other companies to adopt similar, more prudent policies. The one big lesson that companies need to learn from covid/shutdown, is that having too much debt on the balance sheet is an accident waiting to happen, sooner or later. So more emphasis is needed on prudence, and less on "efficient" (i.e. dangerously weak!) balance sheets, and putting the business at risk by chasing apparently high returns on capital - these are dangerous concepts that became too fashionable. I wonder how long it will be before all the lessons are forgotten, and everyone gears back up again?! Maybe 2 years, possibly less?!
- Dividends are banned for 18 months as part of banking agreement
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It's a long document, with lots more detail, so apologies if I've missed anything important. It's worth reading the whole thing if you're interested, as there's lots of detail about operational improvements & strategy.
My opinion - I like the turnaround underway at DLAR, which we've talked about here for some time. On balance though, I think the level of dilution today is too high, and the scale of the pension deficit has shocked me somewhat. For that reason, I've decided to watch from the sidelines for now.
That's already looking like it might be a mistake, as the share price has recouped the earlier spike down, and is now positive on the day. But never mind, nobody ever went bust banking a profit. And I can always buy back in at any point in the future, once I've had time to fully digest the figures & outlook. There's no broker research available for this company, which is very annoying. By withholding forecasts from private investors, the city is gaining an unfair advantage.
EDIT: I didn't properly emphasise the wider point about pension deficits. With interest rates now almost zero, this is very bad for traditional pension schemes. The liabilities become much larger, as they're discounted at a low interest rates. If markets sell off again, then that could also see asset values fall. A double whammy. Plus the third factor is that many companies' earnings in 2020 make it harder to find the cash to pump into pension schemes.
For these reasons, I think we should all be very careful indeed, when considering buying/holding shares in companies with large pension schemes. On that basis, I've decided to ditch my (very small) holding in Norcros (LON:NXR) . Pension schemes rarely pull a company down into insolvency, but they often limit the amount that can be paid in dividends. These are often multi-decade liabilities, as it's not only the retired worker that has to be paid, but also often a spouse too, after their death.
Therefore I see pension deficits lingering for many years to come, and I'm not convinced the market is properly discounting these liabilities. End of edit.
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Boohoo (LON:BOO)
Share price: 425p (up 9% today, at 10:15)
No. shares: 1,226.6m
Market cap: £5,213.1m
This is a multi-brand online fashion retailer. Today's update covers Q1 of FY 02/2021, so March-May 2020 trading.
Brand acquisitions - today it announces the purchase of 2 more brands, Warehouse & Oasis. I think that means both will now be online-only, within the BooHoo Group. BooHoo is clearly becoming the place where failed traditional fashion retailers are re-born online. What a fantastic business model BooHoo has. It picked up these new brands for only £5.25m. You can bet that, within a few years, both are likely to be booming under the new owners. They'll hit the ground running, with prior year combined online sales of £46.8m.
Q1 trading - group revenue is up a very strong 45% Y-on-Y. Growth is particularly strong in Europe +65%, and USA +83%. These are now quite big numbers, and shows the global reach (and hence major opportunity for more growth) that the group has.
Govt support packages - not used, due to strong performance of the business. My understanding is that businesses have to prove that covid has harmed their profitability in order to be eligible. So this is not altrusim, it's that they probably don't qualify for any taxpayer support.
Latest acquired brands (Karen Millen, Coast, and MissPap) are all trading well, having been integrated into the group.
Improved trading in April, and May was "robust" - although it should be, given that High Street competitors were shut!
Gross margin - strong, up 60bps to 55.6%
Minority interest in PrettyLittleThing now bought out, so it's 100% group owned, as we already know.
Net cash very comfortable, at over £350m at end May - I'm not sure if this is before or after the PLT deal completed? Do any readers know, to save me looking it up?
Outlook - very good;
For the current financial year ending 28 February 2021, the Group expects to deliver another year of strong profitable growth, and ahead of market expectations.
Revenue growth is anticipated to be approximately 25% for the current financial year, with an adjusted EBITDA margin of 9.5% to 10%...
The strength of our trading and operational performance in the period further underpins our confidence in our medium term guidance for 25% sales growth per annum and a 10% adjusted EBITDA margin, which remains unchanged.
My opinion - Warren Buffett says never bet against America. We might adapt that here in the UK to say, never bet against BooHoo! Just ask Matt Earl, with his bungled shorting attack recently.
The valuation looks expensive, but bear in mind BOO normally beats original forecasts by a lot. Hence the current year PER of over 60, is likely to turn out to have been a PER of maybe 30-40. Far from excessive, given the ongoing & almost unlimited global growth potential.
My only reservation is a short term factor, that the High Street re-opening gives BOO a lot more competition, and probably competitors are likely to be discounting very heavily in the next few months, to clear excess inventories. That possibly might trim BOO's growth rate in the short term. Longer term, how many High Street competitors are likely to survive? Not many, I reckon. It looks like All Saints, and Monsoon, could be the latest fashion retailers to jettison loss-making stores using a CVA or pre-pack administration. That gives them a shot in the arm to make them more competitive, but often just defers ultimate failure.
There's an interesting article here, giving the timeline of Monsoon's demise. I'm not a fan of its founder, Peter Simon, who struck me as very arrogant, and treated his small shareholders with complete contempt when Monsoon was listed. In a way it's quite satisfying to see the megalomaniac old guard of fashion retailing CEOs getting thrashed by online-only newer, more responsive competition. My sympathy goes to the staff when store closures happen. There's no avoiding the reality that we're heading for a period of very high unemployment amongst mainly lower paid, younger people. Excluded from the property market, and now facing mass unemployment, you can understand why anti-capitalism sentiments are finding fertile ground amongst the young.
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Some interesting snippets now;
Domino's Pizza (LON:DOM)
£1.44bn market cap, at 312p per share (down 8% today)
AGM Trading update - I toyed with the idea of buying some shares in this pizza delivery franchise business, when covid originally struck. Partly because when we were all ill, in my London home, we ordered "Domineros" (as my dyslexic friend calls them!) about every other day. Despite them being very expensive, and variable quality, they always arrive piping hot, and you don't care about the cost when you're lying in bed sick.
Today's update shows good (positive) LFL sales growth in the UK, improved a bit during lockcown. But negative in Ireland.
However, the company has incurred additional costs. I think this point is important, as I reckon this has wide read-across for many companies;
These significant and necessary changes have meant that we have incurred considerable additional costs across our operations during the lockdown period, which have more than offset the benefits from the increased sales we have achieved.
We therefore expect that EBITDA for the first half of the year will be slightly lower year on year.
Read-across - remember that DOM is a business that has traded very well in lockdown. Imagine what additional costs from social-distancing, additional cleaning, consumables such as face masks, etc, will have on companies that are suffering deep drops in sales? This reinforces my view that H1 results season could deliver some really shockingly bad results. Hence why I'm looking to sell more of my non-core positions in the coming weeks.
Remember also that many companies have withdrawn profit guidance. With few broker forecasts out there, we're flying blind at the moment. When the H1 figures roll in, then be sure to be ready for some very nasty shocks. The large caps, tech-heavy indices might fare better. But I think small caps are looking quite vulnerable, after the big recent rebound.
A lot of UK small cap punters seem to be so short-termist, that I'm sceptical that they'll disregard dire H1 2020 results. It only takes a few sells to smash prices down 20-30%. Hence why it might be best to lighten the risk now, rather than face a plunge in the autumn. I could be wrong of course, anything could happen, but this is a real worry for me at the moment.
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Wincanton (LON:WIN)
Share price: 190p (up 3% today, at 15:03)
No. shares: 124.5m
Market cap: £236.6m
Wincanton plc ('Wincanton' or the 'Group'), the largest British third party logistics company, today announces its preliminary results for the year ended 31 March 2020.
Here are my notes from reading through most of this results statement;
Revenues up 5.2% to £1,201m
Impressive client list, renewing contracts, so this is clearly a decent business
Underlying PBT up 7.3% to £52.9m - a lowish 4.4% profit margin, as you would expect from a logistics business. If they charge too much, then clients just take the work in-house, to save money
Underlying EPS 35.8p, up 6.9% - a PER of only 5.3
Net debt £10.1m - seems low, but there's loads of non-interest-bearing debt - look at the big deficit on working capital
Current trading - revenues down 10% YTD. But May was 7% up on April, so business is recovering. Profits down
Final dividend suspended
Uncertainty over full year performance
Pension contributions - £6m deferral negotiated to help cashflow
Pension scheme is a huge issue - note from cashflow statement that it's sucking out £17.8m p.a. in deficit recovery payments. Hence the low PER!
Utterly ludicrous accounting standards for pensions, show this big pension deficit as an asset on the balance sheet! Total madness - the accounting for pension funds urgently needs to be changed, to reflect reality, which this clearly does not
Balance sheet is not strong, as management keep saying. It's weak. NAV is only £14.7m, and if we strip out the daft pension scheme asset of £96.5m, and goodwill/intangibles of £85.6m, and the NTAV is negative at £(167.4m) - and that's valuing the pension fund at nil, when it's actually a large liability. The business benefits from negative working capital, and seems to be able to operate normally with this extremely weak balance sheet. Although we're seeing lots of circumstances where banks are requiring an equity raise, in return for continued support, relaxation of covenants, etc. Therefore I would say WIN might need to strengthen its balance sheet at some stage - probably another reason why the PER is so low, as EPS could be diluted in future from issuing more shares maybe? It's a risk anyway, hence why I'm flagging it.
Cashflow statement - good. It's a genuinely cash generative business.
Big lease liabilities, but these are warehouses, not retail space, so I don't see this as a risk. Warehouses are cheap in the UK, said to be below rebuild cost, hence leases are probably not a problem here.
Going Concern note is an essential read. The auditor drew attention to a "material uncertainty in respect of going concern". This is giving us useful guidance on trading in the current year, saying;
The base case assumes that Group revenue will reduce by c£40m and profit before tax by c£10m compared to normal levels in the 3 months until the end of June 2020 due to the impacts of COVID-19 before gradually recovering throughout the rest of the financial year to 31 March 2021....
It then also sets out a "severe but plausible" scenario, driven by a 2nd wave of covid. This would result in a breach of a banking covenant at 31 Mar 2021. The company says it would negotiate with the bank to flex the covenants, but points out;
In the context of this severe but plausible downside scenario, the absence as at the date of signing these accounts of amended loan documentation confirming the flexing of the leverage ratio covenant at 31 March 2021 gives rise to a material uncertainty, as defined in auditing and accounting standards, related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern and in such circumstances, it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business.
This stuff is driven by the auditors, who I think have done a terrific job here, forcing the company to point out risk to investors. It also validates my view that the balance sheet is stretched.
My opinion - it looks a good business, but unfortunately the balance sheet is too sparse to make it investable for me. The problem with weak balance sheets, is that there's more pressure on companies from their banks, to repair them. Hence a dilutive fundraising here looks likely. That would increase the PER, as earnings would be spread over more shares. Hence it's not as cheap as it looks. Plus the cash outflows into the pension fund are hideous. Combine those factors, and it's difficult to see the company having much scope to pay meaningful dividends for the time being. Which makes it an unattractive investment in my view.
Overall then, I think there are probably better, lower risk opportunities elsewhere.
That's me all done. See you tomorrow!
Best wishes, Paul.
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67 comments
Hi Paul,
Great analysis and I can’t thank you enough for your earlier work on Boohoo (LON:BOO), which encouraged me to do further research and make a small investment. It is now a rare bright spot in my portfolio.
Re.
Govt support packages - not used, due to strong performance of the business. My understanding is that businesses have to prove that covid has harmed their profitability in order to be eligible. So this is not altrusim, it's that they probably don't qualify for any taxpayer support.
Any thoughts on how Sosandar (LON:SOS) are able to furlough 60% of their staff while showing revenue growth of 60%? Is it possible they may not have actually been eligible for any taxpayer support?
Thanks
"Any thoughts on how Sosandar (LON:SOS) are able to furlough 60% of their staff while showing revenue growth of 60%? Is it possible they may not have actually been eligible for any taxpayer support?"
"Revenue" isn't the same as "profit"??
great report again Paul. Fascinating situation at BOTB
Thanks Paul for your update of good news about dexamethasone to treat seriously ill COVID-19 patients. This is brilliant news for patients and it is great to see that the first genuine breakthrough in treatment has been achieved in the UK, partly because our health service makes it easier to carry out large scale clinical trials. One other important development which has been neglected by some parts of the media is the progression of clinical trials of the SARS-CoV-2 vaccine by the Oxford group. As previously hinted by this group, there are now so few new cases of COVID-19 in the UK that it is difficult to prove whether this vaccine works as, even without the vaccine, hardly any cases would be expected in the people involved in the UK clinical trial. This trial was expected to report some results about now. However, I believe it is significant that the CEO of AstraZeneca (which is collaborating with the Oxford group) has said that this vaccine is likely to protect for one year as he would not be saying this without experimental evidence, such as investigating the likely effectiveness of antibodies in the blood of those in the clinical trial. AstraZeneca is producing the vaccine on a not-for-profit basis so there is no reason for him to talk-up the prospects for this vaccine. Even more encouraging is the fact that the vaccine is now being progressed to final stage clinical trials in the US and Brazil where the efficacy of the vaccine should be easier to prove because of the much greater numbers of new cases. Whilst the main strains of the virus in the US and Brazil are slightly different to that of the UK, the mutations causing these differences are so slight that they will probably not impact the efficacy of the vaccine. Like the dexamethesone news, it is rather difficult to develop an investment angle on this, but it is worth noting that Oxford BioMedica has been appointed to produce the vaccine for AstraZeneca to distribute (if successful!) and would presumably produce it each year if an annual dose is needed to maintain immunity. Oxford BioMedica is already working in one of the hottest areas of biotechnology (lentiviral gene delivery) and adding an expensive vaccine manufacturing capability part-funded with UK government money will do it no harm at all, particularly as the adenoviral vector based technology it is using is seen as a significant breakthrough. Wouldn't it be brilliant if the UK is not only first to identify the first breakthrough treatment for COVID-19 and then goes on to develop the first effective vaccine for the disease. Whilst impossible to quantify the odds, I think it would be fair to say that the chances of having an effective vaccine by the end of this year have significantly improved over the past few weeks.
Whilst impossible to quantify the odds, I think it would be fair to say that the chances of having an effective vaccine by the end of this year have significantly improved over the past few weeks.
Yes, it is impossible to quantify. The best case is a vaccine ready by January, although there are still manufacturing and distribution challenges. Most people in the industry think it's more likely to be middle or end of next year and it might take longer.
Personally I'm just sick of excited media speculation about some immediate breakthrough which doesn't happen before they rush onto the next story. Science doesn't work like that. We've already seen what happens when some doctor announces a wonder cure without a proper trial - we end up with mass use of hydroxycloroquine which it now seems is positively harmful.
When there is a vaccine I doubt I'll be first in the queue. Most vaccines take years and years to produce, rushing something through at this pace is potentially risky - and if there is a problem with the first vaccines it'll set the whole cause of preventative medicine back decades. Better go slower and get it right.
In the meantime there will be drugs that will help. Dexamethasone is a massive breakthrough - finding something that cheap and available that can potentially reduce death rates by a third is really significant. Typically it turns out that there are drug cocktails that drastically improve survivability with viruses - and, again, it takes time to figure out what works and what doesn't.
Less hype and haste, we need to do this properly and get it right. An extra few months will make sod all difference looking back in a decade. In the meantime some clear and consistent government advice and less talk of world beating solutions would be in order, since the only thing we're leading at the moment are the mortality tables of countries that have enforced a lockdown.
timarr
Hi Paul. Interesting to see AIM IHT relief is being brought up again. Please forgive me for shamelessly plugging an article I posted on Stockopedia last October, on this very subject...
Inheritance Tax: The Exposure of AIM to Business Property Relief
Hopefully some people find it useful.
I have to say I have no idea how you would value a cash generating gambling machine like BOTB!! But well done Paul because I remember ages ago you said they were a classic takeover situation. Ain't you been right about this one big fella.
If they’re bought out will be for £20 plus imo.
Would be a surprise if they’d sell for anything less one would think due to the rapid growth the group in undergoing.
BOTB. "It's tempting to bank some profit, but I think it's worth 2000p+, hence logically I feel it makes sense for me to sit tight. Obviously that's just one person's opinion, other investors may be happy to bank profits. Your money = your call!"
Always a dilemma! My own reaction has been to sell a few (playing safe) but keep most (for all the sensible reasons that Paul gives)
Revolution Bars Group - in theory is the following correct (all figures rounded):
57m shares in issue at,say, 26p = £15m valuation, add 75m new shares with £15m proceeds less £1m expenses giving 132m shares in issue £29m valuation = 21.7p. If so why are the shares still at circa 26p ?
David.
isn’t it because all share prices react to buying and don’t trade at the exact price they are supposedly worth? Also if the Revolution Bars share price were to fall to 21p it would mean their 20p Open Offer price would no longer be tempting.
For Revolution Bars (LON:RBG) 30p / share looks like the "pre-announcement" price (close on 4th June) so I would say that maybe the best basis.
Using that figure would give a theoretical ex-rights price of 23.5p.
As ken mitchell points out other factors move the share price.
One such factor might be that the market now regards (probably correctly) that with the fund-raising, they are now more financially stable and less risky. That make explain he modest effective increase in the share-price.
I agree about other factors which was why I said 'in theory' but didn't expand. The biggest 'other factor' is the scumbag Market Makers manipulating prices for their own ends, in any other line of 'business' this would be illegal but its still fair game in investing. It's the only financial 'scandal' that never gets aired in the popular press.
David.
I’m no expert on market makers, so happy to be corrected, but think your view (also often expressed on other bulletin boards) is wrong. Afaiaa “scumbag” market makers have far better things to do than play games with small investors in shares like Revolution Bars, or some tiddly pot loss making share, immensely popular with bb posters.
They make a market in thousands of shares, so are they really interested in “manipulating prices for their own ends” rather than to attract say, enough sellers to have sufficient shares available for a big buyer?
So maybe the reason. “it’s the only financial scandal that never gets aired in the popular Press,” is because there is no such scandal?
Absolutely correct Ken. I have never considered selling too low or buying too high to be anyone's fault but my own. Market makers will always try to clear their books if they can and take the risk when they can't.
PI World recently interviewed an ex-market maker. Link below. I found it useful.
https://www.piworld.co.uk/2020/05/15/everything-youve-wanted-to-know-about-market-making-but-never-been-able-to-ask/?ct=t(RSS_EMAIL_CAMPAIGN)
hi paul anymore news on
Revolution Bars Group (RBG) ?
Hi Paul, could you have a look at William Hill (LON:WMH) if you get chance.
Cheers
Hi Paul
Thanks for the comments on De La Rue (LON:DLAR). The investment conundrum is that the pension fund tail is wagging the corporate dog. 15 million a year, rising to 24.5 million, looks pretty hefty against likely future operational cash flows - how can the business prosper long term with that amount of money going out? Before paying any dividends. Put it another way, how is the company proposing to maintain its technology leadership in the remaining businesses? Should a business be being compelled to risk its future to make up an actuarial deficit (which is necessarily conservative), when the fund is actually in surplus on an accountancy valuation?
Strong results from Water Intelligence (LON:WATR) today that seem to have beaten forecasts. The director speak is very positive. Cash exceeds borrowings.
Please will you look at Water Intelligence (LON:WATR) if you have time, Paul?
Hi FREng,
I think that you will find that the Water Intelligence (LON:WATR) results were in line with forecasts, since all the key figures were included in a year-end trading update issued in February. Also, the Chairman, Pat DeSouza, is someone that could convince you of a positive future, even as you were both trapped in an airliner whose engines had failed and was plummeting groundwards.
Notwithstanding my comments above, I agree that the results were very good and the confident statement that they expect to add more insurance accounts in the next few months is new and very positive. In my view, these accounts secure market share and, by doing so, effectively broaden the moat the makes it very hard for other businesses to challenge Water Intelligence (LON:WATR) in their area of "high tech plumbing".
The new broker forecasts that accompany these results look very conservative to me, too. I'll be working through my own figures this week.
With Water Intelligence (LON:WATR) I was quite taken with the business model and invested back in 2017. My opinion was reinforced by Effortless Cools excellent analysis covering several company releases. However, I got increasingly nervous by Mr DeSouza's over the top positiveness and his dense prose which I found difficult to follow. Coupled with his convoluted ownership and possible conflicts (to my mind) of interest meant in the end I sold up in May 2019, albeit at a decent profit.
This was a shame because I still think it is a company with a robust business model and potentially a good future but the DeSousa situation just left me too nervous that I was not being told the full story (though Mr DeSousa is the driving force). I had originally had it down as along term hold.
As a holder of Water Intelligence (LON:WATR) I find the results reassuring, with the overall outlook confident enough. But the rating is not exactly cheap, either. I feel that the share price never seems to make any definitive progress in a northerly direction - my interpretation of the chart is that it is stuck in a descending triangle (which I don't think is positive) and every trading/results update doesn't make headway for long before enthusiasm in the shares flags. I think it needs to make a decisive break upwards for me to feel more positive about it.
Hi Paul,
De La Rue (LON:DLAR): If anyone still owned shares on the 17th of June at 8 am you should still have access to the open offer at £1.10p. Is my understanding correct?
If so the date is already passed the ex-entitlement date. Implying The £1.55 current share price for the new number of shares 194M is worth = to £2 in old money (Market cap - £100M)/103M share. An excellent rise today.
Taking up the offer at £1.10 should mean an immediate profit.
I've included the timescales for the offer if its of interest below.
Record Time for Open Offer 6:00 p.m. on 12 June 2020
Entitlements
Announcement of the Capital 7:00 a.m. on 17 June 2020
Raising
Ex-Entitlements Time for the 8:00 a.m. on 17 June 2020
Open Offer
Publication of the Prospectus 17 June 2020
Posting of the Prospectus, 18 June 2020
Application Forms (to Qualifying
Non-CREST Shareholders only)
and Proxy Forms
Open Offer Entitlements and as soon as practicable after 8:00
Excess Open Offer Entitlements a.m. on 19 June 2020
credited to stock accounts
in CREST (Qualifying CREST
Shareholders only)
Recommended latest time for 4:30 p.m. on 29 June 2020
requesting withdrawal of Open
Offer Entitlements from CREST
(i.e. if your Open Offer Entitlements
are in CREST and you wish
to convert them to certificated
form)
Latest time for depositing 3:00 p.m. on 30 June 2020
Open Offer Entitlements into
CREST (i.e. if your Open Offer
Entitlements are represented
by an Application Form and
you wish to convert them to
uncertificated form)
Latest time and date for splitting 3:00 p.m. on 1 July 2020
Application Forms (to satisfy
bona fide market claims only)
Latest time and date for receipt 11:00 a.m. on 3 July 2020
of completed Application Forms
and payments in full and settlement
of CREST instructions (as
appropriate)
Latest time and date for receipt 10:30 a.m. on 4 July 2020
of Proxy Forms or electronic
proxy appointments
General Meeting 10:30 a.m. on 6 July 2020
Announcement of the results 6 July 2020
of the Capital Raising and
the General Meeting
Admission and dealings in by 8:00 a.m. on 7 July 2020
New Ordinary Shares, fully
paid, commence on the London
Stock Exchange
New Ordinary Shares credited as soon as practicable after 8:00
to CREST stock accounts (uncertificated a.m. on 7 July 2020
Shareholders only)
Despatch of definitive share on or around 20 July 2020
certificates for the New Ordinary
Shares in certificated form
Kind regards,
BSV
Can any reader with investment banking (or any relevant) experience explain why some open offers go ex-entitlement the day of announcement (like De La Rue (LON:DLAR) today), while others only go ex-entitlement several days after the announcement (like Revolution Bars (LON:RBG) )?
Re AIM Inheritance Tax relief
I wonder if any new rules might be phased in, or only apply to new money? This might be a more intelligent way of changing the rules rather than a simple axe.
Also for anyone not aware of how the IHT rules work & wanting to run a checklist against their holdings, I did a brief look into some screening rules a while ago here (DYOR etc): https://www.stockopedia.com/content/a-set-of-potential-bpr-inheritance-tax-portfolio-screening-rules-544726/
There is one problem with your comment it contains the words “more intelligent” in relation to government.
Paul I agree with Tonysaparito. It would be very interesting to get your take if you can recall it, (because if it had been me I would have spent most of my time washing underwear!!) I have currently experienced a really good ride and am trying to understand how I should have taken profits or if there are any signs one should look for. Or even which I am really aware of how to control the greedy little devil that appears on my shoulder telling me to ignore all reason and hold out for Armaggeddon!!
It would be useful to know which stocks the inheritance tax funds are in, I'm not sure how you'd get hold of a list. Potentially it could throw up some opportunities. There are definitely stocks that they "hide" in, just as there are clearly names that are worth holding regardless of any tax benefits.
With regards to social distancing, primarily pubs/restaurants etc. I am told that the government is close to accepting 1m, its just a matter of time. My contact, would know this as he is in constant dialogue with them. I am not truly sure if this would make a difference to any investment thesis but the market has been reacting throughout to news that appears obvious to me.
BOTB.... William Hill (LON:WMH) raised a lot of new money last night. They do all sorts of coupons in their shops. "Win a Ferrari" may attract a lot of interest amongst their customers and online .....Mind you, perfect for the privately owned Bet Fred business too and the Done brothers are looking for deals. (disclosure I own both and bought more Hills in the Primary Bid offer last night).
how about Betway who already have a gateway to their casino/ betting platform via BOTB
Thanks for your ECK report yesterday Paul. I got the 'it could grow into its valuation'. Nicely put.
Out of interest Paul, did you exit your long position in DLAR yesterday or this morning?
thank you
I sold DLAR this morning. It was a smallish position, so no great shakes either way. Interesting that blueskyventurer above reckons that I could still be entitled to the Open Offer at 110p. That would be a nice Brucie Bonus. I didn't have time to fully digest all the technical details of the DLAR announcements, as I was pre-occupied with BOTB's announcement.
I've just checked with my broker, who has confirmed that I am indeed entitled to the Open Offer, as would anyone be who sells from this morning onwards. He says IG has already credited the entitlement onto client accounts.
Thanks for flagging this.
Regards, Paul.
HiPaul,
Thanks for the confirmation.
BSV
Thank you Paul
It is also worth noting that De La Rue (LON:DLAR) has an excess offer. You may apply for more than your entitlement and may receive shares not taken up by others.
Here there can be an advantage in being in a nominee that is counted as one shareholder. You may benefit from others in the nominee who do not take up their basic amount or who not apply for excess. So in the recent Costain (LON:COST) open offer shareholders who applied for excess were scaled back to about 12% of what they asked for. However, a discussion on another board showed those in nominees got the following:
Barclays 40%
ii 60%
Hargreaves L 69%
iweb 100%
I too sold dlar this morning. Ease could you explain how I take part in the offer. Will I automatically receive a letter or do I need to instruct my broker to do this for me. TIA
Another point from the prospectus just now: the entitlements cannot be sold for anything at all, at is different from a Rights Issue. See below:
"New Ordinary Shares for which application has not been made under the Open Offer (including the Excess Application Facility) will not be sold in the market for the benefit of those who do not apply under the Open Offer (including the Excess Application Facility) and Qualifying Shareholders who do not apply to take up their entitlements will have no rights nor receive any benefit under the Open Offer."
I may be wrong as I am new to markets but that's my understanding from doing bit of research!
I await experienced friends here to give me some clue about this and my earlier comment below.
Cheers, SMT
HI Paul and others,
Helpful comments from you all. Thanks.
I held my DLAR shares with Interactive Investor (ii) and I sold them 10:30 ish. Based on you all say, I should be entitled to some shares at discounted price, correct? I called ii and they said No despite noting Paul who confirms has received the credit in his IG?
Can anyone help me digest what is going on? How manay shares will I receive or will it be cash credit? When can I sell them? or can I sell my entitlements without paying for shares? Sorry, I am quite new :-)
Sayed -
Firstly welcome as I see these are your first two posts.
You are quite correct about the difference between rights issues and an open offer. In an open offer if you do nothing you get nothing. In a rights issue you can trade your "rights" on the market and if you do nothing then after the closing date your rights shares will be sold on the market and any excess over the issue price will be paid to you.
The key part of today's announcement is the timetable - almost at the end before the appendix of definitions. It clearly says -
Ex-Entitlements Time for the Open Offer 8:00 a.m. on 17 June 2020
That means any sold after that time are done without the entitlement to apply for the offer shares - that stays with the seller. Hence the collective allocation to ii will include your shares. It also says the prospectus will be posted today and I suspect your question was answered without the person having seen that. Not all broker's staff who answer questions are 100% correct! I suggest you wait until tomorrow when they have had time to digest this and point out that line in the timetable.
Good luck
Many thanks indeed for your comments @sharw and @laurie.
Lastly, with all the pension deficit etc. is the entitlement worth taking if we only consider the dilution as a result of today's announced plan?
Cheers. SMT
Sayed -
You must make up your own mind as to whether De La Rue (LON:DLAR) is worth holding long term with such factors as the pension deficit but you may also consider whether or not you have a short term trading opportunity. At the moment through the offer you are able to obtain shares at 110p which are trading at 160p at close. If (yes, big if) they are still at that level after you receive the offer shares you could make a short term profit. Study a few recent offers to see what happened. In my own experience I applied for offer shares at 60p in Costain (LON:COST) and they are now 77p. I did leave it to the very last minute (ii will give you their deadline) before deciding in case either the company share price drifted down, or dropped with the market. Nothing is guaranteed with share prices!
I recommend phoning Interactive Investor again in a few hours.
The ...training of the staff who answer the phones at Interactive Investor is ...variable. Putting down the phone and redialing later in the hope of speaking to someone different is the only way that I have found to solve problems. Some issues have taken many phone calls.
Hi Paul...IndigoVision...Please can I ask , if on one of your quieter days , if you could do a longer write up of your whole experience in this company..by any standards I would like to know what got you into the company at 30p and the ride all the way up to £10...surely along that journey you must have thought of selling out earlier, top slicing etc etc but I think many here could learn a lot of your mindset and physiology of your journey...we all know you are a clever cookie and your whole experience up and down should be written by you in your book...I would buy such a book ,not only because we know you here but because you have a style of writing in which your words are written to us the reader , rather us the wider audience...You are a no doubt a smart investor and your daily column gives us all deeper insights into some of the companies you are personally invested in....Keep doing what you are doing please...it’s brilliant.
I’ll second that! A book by Paul would be v interesting full of great lessons
What would be the best way to find out which shares are held by AIM funds and may be at risk of forced selling? There might be some decent prices to be had should the adjustment to inheritance tax come to pass.
Regarding Aim shares held by AIM funds, here's a list from a previous article on here:
https://www.stockopedia.com/content/inheritance-tax-the-exposure-of-aim-to-business-property-relief-522736?order=createdAt&sort=asc&mode=threaded
The AIM IHT portfolio providers don't like to let on what's in their portfolios since they want to charge you a premium to operate them on your behalf. I run an IHT portfolio by hand and maintained a list of their disclosures for a few years, which soon got to 100 companies.
They like to promote the idea that lots of AIM stocks aren't eligible for the BPR but in practice, the issue is that most AIM stocks are crap investments.
Despite the lack of alternative IHT tax shelters, I would sell down the portfolio (very quickly) if the relief was withdrawn as, without it, AIM stocks are not a suitable asset class for old people with necessarily short investment horizons.
Re AIM funds and forced selling, this might lead to a long hangover in some shares.
However, if you held for tax reasons, there are few other areas to shelter the proceeds so maybe the selling will be less. Its likely its a smaller part of a large portfolio too as its much more risky so may be just held. However well worth keeping a note as it might give up good prices or just the reason for the decline, and not a reason to sell for long term holdings. Stephen english of PI videos runs an AIM portfolio i believe.
On Pauls pension fund topic for De La Rue (LON:DLAR), are zero or close to it, interest rates, for a long time a much bigger problem for any company with a pension deficit. I think the regulatory markets forces bond buying by pension funds & the likes of £l&g . I have little knowledge other than avoiding pension debt. Is the situation now much worse as no hope of deficit reduction other than paying it down (as well as all the c19 debts) ?
Yet another big thanks to Paul for flagging up Boohoo (LON:BOO) back in the day.
Much too big now to feature in SCVR nowadays - but just goes to prove that sometimes "from little acorns......." or in this case a whole forest.
Hi Paul,
Can you also comment on Boo Hoo after their new purchases and revenues exceeding expectations. Thanks TA
Best Of The Best (LON:BOTB) well done Paul & thanks for your research!
You mentioned a PE would value this at £20 now. What do you think this could be worth & who would be interested? Maybe some of the big gambling firms?
I see that Betway are already involved in the website with their casino & sports betting.
PE of 30 I should add
I’ve just bought some as couldn’t get any yesterday. I think any sale has to be at least £20 per share.
New eps forecast of 69.8p x say a multiple of 30 gives a share price of £21 ish as Paul explained yesterday.
Sorry to be picky Paul (as a pharmacist) it is Dexamethasone
Being picky is a good trait in a pharmacist.
Thanks for flagging my typo, I've now corrected it. I did look up the spelling last night, but (probably much like a pharmacist), I can't read my own writing!!! ;-)
My morning smallcap tweet: BEST buyout bouyancy
Best Of The Best (LON:BOTB) De La Rue (LON:DLAR) 1Spatial (LON:SPA) Aortech International (LON:AOR) Boohoo (LON:BOO) RTC (LON:RTC) Evgen Pharma (LON:EVG) Spinnaker Opportunities (LON:SOP) Mediazest (LON:MDZ), Pelatro (LON:PTRO), STM (LON:STM), Zambeef Products (LON:ZAM)
Best of the Best (BOTB) hoists For Sale sign after interest.
De La Rue (DLAR) £100m placing and OO at 110p, a 28% discount. Will be used for Turnaround Plan. Can't they just print the money?
1Spatial (SPA) CFO scarpers. Will stay for a short handover. She is thanked.
AorTech (AOR) will trade as RUA Life Sciences (RUA) tomorrow.
boohoo (BOO) rev up 45% in 3 months to May. Acquires online businesses and IP of Oasis and Warehouse for £5.25m. Guides FY rev up 25%, ahead of market expectations.
RTC (RTC) AGM stmt vague. CO believes "the number of contract workers required in the infrastructure and railway transportation sectors will increase in Q3 and smart-meter installation activity will recommence."
Evgen Pharma (EVG) SFX-01 selected for trial to test if it can can reduce the severity, or prevent the onset of, acute respiratory distress syndrome associated with covid.
Spinnaker Opportunities (SOP) re: Kanabo Research RTO. Still waiting for confirmation of the overall listing requirements for cannabis-related companies by the appropriate UK regulatory bodies before it can relist.
MediaZest (MDZ) two projects worth £125k total (min) for completion in Aug.
In line: Pelatro (LON:PTRO) STM (LON:STM) Zambeef Products (LON:ZAM)
Any chance of a gander at Severfield (LON:SFR) Paul figures look good considering covid with profit and UK revenue up, operating margin slightly down and they are saying cash comitted funding is fine through to 2023. One of the shrewer small cap fund managers thinks the Indian business if spun off is worth near the overall market cap not so sure with that as can;t imagine situation in India is to sharp at the moment.
Regards Andy
Boohoo (LON:BOO) I held Boo from Nov 2015 but sold on 19 Mar 2020 with a CARG OF 44%. One makes mistakes but I was in a terrible place. I ran my own business for 30 years mistakes are part of life. They are not the end of life.
Anyway there will be winners and losers from the C19 & #BOO is likely to be one of the winners so I placed an an order for a small position, which I suspect I will build upon. I think that there is nothing to stop Boo becoming, in the UK, the $AMZN of clothes. The only place most people go to shop clothes.
I also took a similar 2% position in Best Of The Best (LON:BOTB) yesterday afternoon. What an extraordinary RNS this morning. What exciting times we live in.
I look forward to Paul’s comments on both. BOTB announcement is a great late birthday present for him!
Have a good day everybody Michael
Kind regards
Michael
re. your comments on COVID in China. I live in China and had to cancel my business trip to Beijing this week because when I return to Shanghai they would make me do 14 days in quarantine. One of my staff in Beijing who takes a bus to work that went close by the market has been told to work from home for 14 days. Hundreds of flights have been cancelled. I just offer these as examples of how seriously the Beijing Government is taking this. 100 new cases in Beijing today. The general feeling here is calm but very worried about the economic problems another shut down would cause.
Hi Paul,
I hope you had an enjoyable weekend!
Do you have any comment on BOTB starting a formal sale process?
Thanks
Mark
I'm too novice to understand whether 'any interested party participating in the process will not be required to be publicly identified as a result of this announcement' is usual practice here but I was wondering why this might be the case. I don't want to sound cynical but might this be the three major shareholders (who run the company) trying to buy the company through this process...? (I hold)
Would not they have done this before when it was cheaper as, after all, they know more about the company than outside investors ?
It could be if there is limited free float, as seems to be the case here when at least 3/4 individual shareholders hold circa 74%.
If it is judging on past behaviour it is a more honourable approach than forcing a delisting.
My guess is that it could be Private Equity
My first thought was it could be attractive to an online gaming company looking to diversify and reduce regulatory risks. Time will tell (or perhaps not).