Small Cap Value Report (Weds 3 Feb 2021) - SAGA, SUR, DISH, DEV

3rd Feb '21 by Paul Scott

128 comments 12564 reads

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

Thanks to Tamzin & Tim at PIWorld for another utterly brilliant chat with Andy Brough. This is pure gold, I recommend everyone listens to it -

Timing - I started early today (too tired yesterday to do any more), so will be finished by lunchtime.

Agenda -

Latest covid/re-opening thoughts - bullish news

Quick recap on Saga (LON:SAGA) (I hold, my 2nd largest holding after Boohoo (LON:BOO) )

Sureserve (LON:SUR) - preliminary results for FY 09/2020

Bigdish (LON:DISH) - changing the business model yet again!

Dev Clever Holdings (LON:DEV) - shares going exponential. Looks very flimsy to me at >£100m mkt cap, buyer beware!

Covid/vaccine news

Seems to be very encouraging. Today’s papers are talking about “coming out of lockdown as soon as possible” (Sir Iain Duncan Smith). Vaccinations - 10 million people have now been vaccinated - if you’d told me a few months ago, that the vaccinations would be so well progressed by early Feb 2021, I’d have scoffed, and seen you as wildly optimistic. Yet that’s where we are. Hence share prices should be buoyant to reflect this.

Today, the press are reporting that a major study has shown the Oxford-AstraZeneca vaccine prevented all hospitalisations after 22 days, and that a single dose prevents two thirds of onward transmission. Obviously check the precise details yourself, I’m just regurgitating what’s in the Telegraph, and they have been known to get things wrong on occasion.

The above clearly means that we should be pricing in a return to near-normality into shares. Not at some distant point in the future, but imminently, i.e. the next 2-3 months. This is good for travel, leisure, hospitality, retailers (maybe), and the economy generally. I see a lot of pent-up demand, and a desire to splash out on luxuries, being unleashed. Although many shares have already anticipated recovery, so how much upside is left, I wonder? The opportunity is to find shares that haven’t yet anticipated a full recovery, with lots of upside to be had as they catch up. I've just this morning booked flights for a month in Malta in Sept/Oct. Why not?! I reckon we could see a stampede for holiday bookings.

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Gareth Cresswell

3rd Feb '21

If you have been vaccinated why would you be concerned about another individual being on the plane who has opted not to be?

If we move towards discriminating against people who choose not to take a vaccine it is a very dangerous step in my opinion. It's outrageous.

I'm no crazy anti-vaxxer by any means but refusing to be a guinea pig for a cobbled together, unproven vaccine should not result in being refused entry to any event, travel scenario or employment situation.

ed_miller

If take-up is as high as 81%, those unvaccinated can expect to benefit from herd immunity inhibiting the virus transmission through a lack of sufficient numbers of new hosts, hence damping down and eventually snuffing out the contagion; unless they are unlucky. What vulnerable (and other) people should do is accept the vaccine when offered.

peterg

God forbid someone actually has a deeply held belief that people should be free to make their own choices in life with respect to their personal risk

The point being, of course, that it is not a question of making choices with respect to their personal risk! We live in a crowded society where we interact. One person's choice with respect to their behaviour affects others.

If you want to go and live on a desert isalnd on your own, that's fine, you can choose to behave as you wish. If you are living an a society in which a contagious and harmful infection is prevelant, then you can't make such simplistic judgements.

I don't think that is correct, most of the deaths have been in the over 65s, believe the figure is over 90%. If the vaccine is 94% effective, then the number of deaths will fall, it won't be the same.

That is true, but the issue of the infection rate amongst younger age groups remains serious. If unvaccinated virus circulates widely amongst younger people, and in particular if they start travelling widely, then the risk of more dangerous variants increases - and some of those may lead to more deaths or more economic harm for a variety of possible reasons.

MiserableJacktPotato

Ah, good old "false equivalence", where we compare the risk of ongoing chronic conditions that affect the NHS with an acute crisis that will wreck the NHS ability to cope if it gets out of control.

And of course, there's the argument "why not worry about all of them"? In priority order of course.

Lastly, has there been a year, without a winter "crisis". Yes. Many without a "crisis" though the primary care system and hospitals suffer winter pressures of course, but you don't see entire wards closed down because the staff are all so ill, or so many people in intensive care the oxygen has to be rationed (if we did, they would've improved the oxygen supply).

CamRaid

Exactly, I bought at 159p on Nov 9th and have enjoyed the uptrend with a 77% return so far. There is a definite uptrend but the ride is a volatile one based on Covid/Vaccine based news. I am with Paul and herbie47 on this one.

UK_Investor_8888

"false equivalence"

That's precisely the point. COVID-19 is an elevated crisis because other equally horrid conditions are lowered.

I don't see this as anything more than an extreme end of the routine. Bad bugs come along occasionally like bad weather, bad stock markets, bad governments.

timarr

If unvaccinated virus circulates widely amongst younger people, and in particular if they start travelling widely, then the risk of more dangerous variants increases - and some of those may lead to more deaths or more economic harm for a variety of possible reasons.

That's true, and the risk of younger people not getting vaccinated is a problem. But ...

We haven't studied the progression of a pandemic disease in real-time before so it'll be interesting to see how it progresses. However, the theory is that if children get repeatedly infected while young they develop increasing immunity so that if they catch variants later in life they don't get seriously ill, and pandemic diseases "disappear".

That runs counter to protecting the older population, who don't want anyone getting the disease because it could be fatal for us. But that's not fair on younger generations.

I think we have to accept that as older people we'll need to have an annual jab and may face occasional restrictions - or be prepared to take the risk. The incredible improvements in vaccine technology that we've seen in the last year - particularly using mRNA - offer a lot of hope that any limitations will be relatively short-lived.

Personally, I think young people have already done more than enough. I know the papers are full of stories about reckless behaviour but an R rate consistently half or below of the natural rate tells the real story. As soon as over 50's are vaccinated and the NHS is protected it's time to move on, release lockdown measures and let the kids have their fun.

Harry Hindsight

So a cruise that cost £5k will now cost £10k. A flight to Mauritius £700 now £3k. A caravan on the Dorset coast £50 a night now £150 - guessing but maybe set up a website to 'auction ' holidays - boom.

And don't have to worry about parking tickets. High Streets were dying long before covid.

Gromley

As a community, I imagine we collectively should have an above average ability to process information, to separate the proven, the probable, the possible and the implausible and to form a rational risk assessed view of things.

It is not easy to reconcile this view with some of the Covid related discussions in the comments today.

I do absolutely understand that there are valid differences of opinion as to where priorities should lie (and should have laid thus far). When expression of these issues decay to plain disinformation, I have to reflect on how sophisticated we really are in this forum and how we should not be surprised that disinformation permeates in the broader (less discerning?) community.

To come back to investment relevant matters ; I humbly suggest (not for the first time), we might be better focussed on what restrictions are likely to be increased or relaxed. Whilst what any of us think SHOULD be done might be "interesting", what is far more relevant is what is actually likely to happen.

Brookeda

Been offline all day, as the latest this is my first post read. Should be an interesting scroll down :-)

GrahamF

At the end of the pandemic, I hope that someone is going to collect all the arguments on all sides about the Covid data, the deaths, the testing, the lockdowns, the vaccines, the risks, and clearly demonstrate why some were wrong and others turned out to be right.

But I’m probably being naive in thinking that it would get those who called it wrong to admit that they did so.

Too many of us are like the person who believes that they can drive safely having had three or four pints of beer and therefore have a right to flout the laws around drink driving.

What with the idiots holding mass events such as weddings, people who don’t want to “be a guinea pig” for the vaccines ignoring that 1000s of volunteers in trials have already been the guinea pigs on their behalf, to those who believe the tests are simply wrong and the hospitals are empty, too many of us would just believe that a fringe view on the net is more credible than a whole team of scientists working for the government. And so the government have got no chance of getting a good outcome to this.

We need to stop pussyfooting around with the vaccine. If you’re in a front line job meeting lots of people you must be vaccinated. If you don’t want to do that, sorry but you cannot do that job anymore than a person with defective eyesight could be allowed to drive a bus.

DJLJ23

I read a report about Poland, which has a very high % of Anti vaccine believers, However when people were not taking up the vaccine, high profile celebs and Politicians found they could jump the queue and now the demand is considerably higher.

Tony Drew

not to mention global warming!!

Ceylon trader

Well said, Facts get voted down these days. It's the post-Covid era don't you know. I find(with over 20 years experience in healthcare) this virus has suppressed our ability to reason more than it attacks the - immunity. It' s for sure a plague of sort...infecting unsuspecting minds . we seem to have lost any respect for facts, after all they are a stubborn thing..no matter of wishful thinking. I mean we didn't have a stock market crash ? in 2020 because of a plague, but the -lock down. There's me thinking, on a investment forum, folks might like a good rational..discussion. I guess we have to do as we're told it's new ear, very dark days....while we're scrambling(speaking as a retail investor).. for value shares, Chinese folk...are laughing all the way..to the Bank.

Its not been a bad day on the bourses. +1.3% on top of yesterday's +1.6% for me.

EVRAZ (LON:EVR) down 3% - possibly sanctions against Russia spooking investors.

Plus500 (LON:PLUS) +1.2% - second day out of the doldrums.

XLMedia (LON:XLM) - 1,000,797 shares traded today, probably The Mitterand's buying up Axion's stock, +6.32%.

jonno

Your narrative gets my vote Gromley. Much common-sense, which unfortunately is not always so common.

Also I cannot help but agree with the views expressed by GrahamF. While Graham's final paragraph in respect of making vaccination a pre-requisite for certain types of employment may sound somewhat draconian it is perfectly rational, in my view.

I shall leave the Covid debate there and get back to trying to better understand the investment merits of UK small caps.

AJC0504

4th Feb '21

Great depression

Hi Millbank

Great article and agree that it is hard to understand the future, post Covid.

My worries are that we are all expecting a boom in the leisure industry, and that post Covid, there will be a bounce in the stock market as a result of the Fed creating loads of $.

Perhaps and certain companies such as £Saga will do well, but I think we are being optimistic re a return to normal.(I hold)

My question is that a lot of these service sectors have been decimated, and unemployment will rise sharply in the USA ,UK, and Europe. Think of the High Street shopping chains. This is not a political statement , but if you have no consumers ,the baby bloomers retiring, and hence a dramatic reduction in their spending, how will the economy grow. I believe it is correct that the service industry, makes up 80% of our economy. Also the younger generation, and here I refer to my children, have left university with debts in 50K range, both in professional style jobs with salarys in the range of 23- 26K. One living in Dublin and the other in London. Not a lot of spare consumer spending there.

My thoughts are that this community ,which I love ,should be having a running blog in which opinions regarding the future are discussed, allowing us to identify future trends and companies.

I also think that there is the likely hood of a major correction, starting in the USA, and that we are in a bubble market.

Robin Hood and Reddit being good examples

I am basing this on partially on Jeremy Grantham and the levels of the USA Stock Market. If there is going to be a 50% reduction, how do I prepare and get insurance.

U Tube-Why Grantham says the next crash will Rival 1929.

Could one of our smart investors, or our leading feature writers like Paul or Jack or Ed Croft do a series of articles and advice on this.

I am getting very scared.

Thank you

The underlying profit of Saga for the 6 months to 31 July 2020 is £15.9m. This takes into account one off costs and profits and the write off of goodwill. I think this makes the adjusted EBITDA £36m which annualised is £72m.

The business is focussing on cost reduction, improving margins and rolling out new products and services. This should improve profitability.

If we take the EBITDA as static but add in the cruise ships running normally (hopefully this will be the case in 2022) this would give us EBITDA of £152m. The enterprise value is currently £1.1bn. This gives us a EV/EBITDA of 7.4.

What would be a sensible EV/EBITDA? 10? This would mean a EV of £1.5bn, so assuming the debt remains the same, a market cap of £715m giving a share price of £5.10. This is over double the current share price assuming normality in 2022.

Small Cap Value Report (Weds 3 Feb 2021) - SAGA, SUR, DISH, DEV

Covid/vaccine news

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Paul Scott

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