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!
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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.
eCommerce
I’m pondering how eCommerce might be affected? Personally, I’ve found ordering online for home delivery so convenient, and everything from Next (LON:NXT) and Joules (LON:JOUL) (I hold) is good quality product, and fits me like a glove, so I never need to return anything. Therefore, apart from buying a few basics from Primark, maybe twice per annum, I doubt whether I’ll go back to regular clothing shops much again, if at all. I wonder how many other people feel the same? I.e. the pandemic may have triggered a permanent change in consumer behaviour. For that reason, I’m generally not backing any physical retailers to make a big recovery. My money is on Joules (LON:JOUL) (most sales are now online), and Boohoo (LON:BOO) of course. Next (LON:NXT) is tempting, but it’s gone up too much, and I’ve missed the boat, for now anyway.
Travel shares
In terms of travel shares, Jet2 (LON:JET2) is my favourite on fundamentals & track record, but again, the price has now probably baked in most of a recovery. To make it appealing as a buy now, we would have to assume the share price would break into new highs - possible, but I don’t want to make heroic assumptions to make a buy case stack up, there needs to be some margin of safety.
Saga (LON:SAGA)
(I hold)
For me, the stand out bargain is still Saga (LON:SAGA) (I hold) . There is obviously a selling overhang in the market, as the price keeps getting bashed down again, whenever it tries to recover. Looks like Setanta Asset Management is selling down its position, now just below 7%. Hopefully the house broker might be able to place that with another institution, and clear the way for a share price recovery. I’m happy to just wait, this one should produce a good return over my 2-3 year timeframe, if things recover as they should. I remain of the view that the upside could be a 4-5 bagger in the long-term, on the basis that 100p EPS per share is possible, with 140m shares in issue, hence a PER in the teens gets us up to a price target of 1000-1500p per share. As opposed to 253p now. It’s just the wrong price, in my view, but at the moment my view seems an outlier!
This is where patience could be a great virtue. Lots of investors don’t seem to be able to look beyond covid, with Saga shares. Travel should resume for summer 2021, but I think the full benefit is likely to be next year, so calendar 2022, being FY 01/2023.
Debt is mainly just asset funding for the 2 owned cruise ships. Plus a £250m bond they reckon can be repaid from cashflows. None of that should be a problem, why would it?
Hence why I can’t see the point in looking for other covid recovery shares, when what I think is the best one (Saga) is already in my portfolio. I just need to buy more.
Last night, Joanna Lumley's latest travel show did a feature on Tilbury Docks, and I noticed that one of Saga's two ships made a cameo appearance, but sadly Joanna's usual sense of breathy wonderment, did not extend to the Spirit of Discovery - she didn't mention it at all, as the camera panned past. How disappointing! Maybe we should get her onboard with a complementary state room, or if she's busy, then maybe Jane McDonald could be hired to burst into song randomly, and accost any fellow travellers with Wakefield accents?
Carnival (LON:CCL)
I’ve also looked at recent results from Carnival (LON:CCL) expecting to find a basket case. Actually, the figures pleasantly surprise. Yes it has a lot of debt, some of it quite expensive, but it also has a massive cash pile. So liquidity is not a problem, and once customer bookings recover, then the cash pile would recover to a point which would enable Carnival to pay off a lot of its debt, or at least cherry-pick the expensive debt (assuming no early payment penalties), and repay that.
The ships should generate a lot of cashflow once they’re operating again, and the numbers suggest to me a healthy business once again, in a couple of years’ time perhaps. Hence it’s worth a closer look, in my view. It’s funny how we all have preconceptions about companies, and we imagine what the numbers might look like. It’s only by actually digging into the numbers that you sometimes find reality does not match those preconceptions, creating potential investment opportunities. Think I’ve talked myself into buying some Carnival shares!
As always, please do your own research (DYOR). I cover c.500 companies, so can't possibly research every detail of all those, hence why it's vital that you check everything for yourself. Also always bear in mind that sometimes I get things right, but also get plenty of things wrong - same as everyone, as buying shares is all about trying to predict the future, not just on fundamentals, but also on market sentiment, which is unknowable with any degree of certainty. Sentiment can turn on a dime, at any time.
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Sureserve (LON:SUR)
63p - mkt cap £99m
This share floated in 2015, originally called Lakehouse. I followed it for a while, met management because it looked cheap, but my views were inevitably tarnished by very poor performance, and all sorts of problems that emerged which needed sorting out.
It’s time for a fresh look, because the share price has been recovering strongly (although what hasn’t, in recent months?!) and the StockRank is now very high.
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Sureserve, the compliance and energy services Group, is pleased to announce its preliminary results for the year ended 30 September 2020.
Strong performance ahead of expectations; stable platform for growth
Revenue down 7.7% to £195.7m
“Significant” covid impact
Adjusted PBT (profit before tax) £9.4m (up 13%) - a good performance in the circumstances, I’m impressed. Although furlough support helped.
Adj EPS up 11% to 4.9p
PER of 12.9 - looks about right for this sector, which doesn’t tend to attract high multiples due to being lowish margin, and things often going wrong
Net cash of £9.8m is good (removes IFRS 16 lease debt, as I always do, because it’s nonsense, and isn’t interest-bearing debt). It says this figure is “allowing for deferred VAT payments”, which is ambiguous. Net cash on the balance sheet itself seems to be £9,679k cash, and no reported bank debt. Yet the cashflow statement says about £6m VAT has been deferred. It’s not clear how this has been accounted for. Anyway, the overview is that the net cash figure is a temporary, artificially favourable position, due to creditor stretch.
Order book of £355.8m (up 6.8%) - demonstrates strength of what must be multi-year contracts, giving good visibility I imagine
Note 35 shows that Bob Hold provides consultancy services at a rate of £1,595 plus VAT per day! Who does he think he is, a partner at an auditing firm?! Oh no sorry, it’s per day, not per hour, so he’s a bargain in comparison with the audit partner.
Dividend of 1p is being recommended. Historic divis have been very small, suggesting to me that it’s not a very cash generative business.
Divisional performance - compliance did very well, with EBITA up 40% to £11.8m, and a decent 8.6% profit margin. Energy services did badly, hit by covid in H2, with EBITA down 82% to only £0.8m (a 1.3% profit margin)
Outlook comments -
We have started FY21 strongly and, with 77% of revenues covered by our £355.8m order book, we look forward to the business continuing on this growth trajectory."... well-positioned for further organic growth in a fragmented and regional market”
Going concern statement seems OK, but note bank facilities are due for renewal by 31 Jan 2022, with initial discussions having taken place and the company says it does not anticipate any challenges.
Balance sheet is adequate, but not strong. NAV £50.1m, but intangible assets are £43.0m, so NTAV is quite small at £7.1m.
Bank debt has disappeared temporarily, but trade payables look high,
Note that right of use assets is mostly commercial vehicles, plus some leasehold property, just mentioning it as that’s unusual, but OK.
Receivables are high, and includes £17.3m of accrued income - i.e. services provided, but not yet invoiced.
Ageing of receivables (note 21) looks good - i.e. most customers are paying on time, which suggests a blue chip customer base.
Trade & other payables are high, at £42.8m, which includes the late VAT. Taxes due has gone up from £5.1m LY, to £10.5m this year. Remember this will unwind in due course, reducing cash.
Cashflow - exceptionally cash generative this year, due to stretching its creditors. This will unwind in future, remember.
My opinion - this is better than I expected.
Temporary creditor stretch flatters the cash position, but once it normalises the debt position looks fine.
There could be scope for FY 09/2021 performance to beat 2020, if the energy division is able to recover. Although with autumn/winter lockdowns probably restricting activity, earnings recovery might have to wait until the following year maybe?
Overall, I don’t tend to invest in this sector, as things often go wrong, and margins tend to be under competitive pressure, with not much in the way of differentiation or pricing power, for companies offering these services.
Although taking it as a given that this is not an appealing sector, then Sureserve looks OK within a not very good sector.
Why would anyone buy this share though? For me, investing is about trying to find exceptional companies, or super-cheap companies which are priced far too low. Sureserve doesn’t fit either mould. It’s just an OK company, in a fairly poor sector, that doesn’t even pay decent divis. I cannot see why anyone would pick this share ahead of all the other, superior companies out there. There’s nothing in particular wrong with it, but there’s not much right with it either. So why get involved? It would have made a cracking buy at the height of the crisis in March 2020 (what wouldn’t though?) and has tripled in price since. I think that’s probably as good as it gets, and can’t see any reason why it would rise any furthe from the current level of 63p. That looks a fair price, so personally I’d be looking to sell out after the big recent price rise, and find something with more exciting upside and better divis.
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Bigdish (LON:DISH)
(I hold)
1.35p -mkt cap £5m
Another day, another business plan! To summarise the latest update today -
The restaurant dining app has now been put on hold.
The newly created "venture builder" - "to be spun out into its own listing"
Another new business is being created in the Philippines (where the Chairman/biggest shareholder lives), a JV (70% owned by DISH) to manufacture plant-based meat products, it's called Amala Foods Inc. It says no additional funding will be needed during the 6-month setup period.
My opinion - I haven't really taken this in yet. This share was always a punt, but what I'm actually punting on keeps changing!
People keep telling me it's going to 0p, but they've missed the main point. The Chairman is very entrepreneurial, and will use the listing to do something else, if the original plan doesn't work. He's well connected too, and has proven the ability to access funding.
You might understandably scoff at the above, but bear in mind that in a bull market like this, there have been some spectacular profits made when an interesting new business is reversed into an existing cash shell, particularly if it's something tech, or another fashionable sector.
I'm happy to hold, and see what happens. It's just a complete punt, nothing more than that.
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Dev Clever Holdings (LON:DEV)
23.75p - mkt cap £114m
A reader has asked me to take a look at this. I’m not familiar with the company, which listed in Jan 2019.
Background - Graham looked at it about a year ago, here, when the price was only 3.45p - I bet we’re all wishing we’d had a punt on it then, as it’s nearly 7-bagged since!
Of course that doesn’t mean it’s any good, it could just mean that people may have chased the price higher in a roaring bull market for speculative shares.
Graham concluded that it was too early stage to form a view, a year ago, with negligible revenues, but some potentially interesting projects in the pipeline.
I've reviewed the company's announcements, and summarise them as follows -
Interims - to 30 April 2020 - nothing much here, only £383k revenues, operating loss of £613k in H1, so a tiny business, little more than a startup judging from these numbers. Nothing on the balance sheet either.
29 July 2020 - raised £250k at 10p. Plus the CEO converted £21k of loans into equity. 441.1m shares in issue, in total at this point.
3 Sept 2020 - £1.75m raised at 10p per share. More warrants exercised at 1p (check how many are outstanding). Total now 470.m. Seems to be part of a 10p funding line of up to £10.0m from a Jersey-based investor.
10 Sept 2020 - Trading Update - FY 10/2020 in line with management expectations “Acceleration in forward momentum over the past several months”. “Materially significant contract win” of $1.2m, to “undertake two COVID-19 careers impact assessments” in USA & India. Mentions partners Lenovo, and Veative.
17 Sept 2020 - Partnership agreement for non-core product. £115k fee, and revenue share, for “PubWars”
2 Nov 2020 - Extended agreement with Intrinsic Capital Jersey Ltd (ICJL) for more funding at 10p per share.
6 Nov 2020 - Heads of terms signed for online careers advisor software, in India. No financials disclosed.
1 Dec 2020 - ICJL puts in another £2m at 10p/share. Has the right to buy another 60m shares. NB 50m warrants issued at 25p per share.
21 Dec 2020 - follow on from 6 Nov announcement. Deal now signed, 5 years. No financial terms provided.
27 Jan 2021 - Funding agreement with ICJL tweaked yet again! Notes “substantial increase in the Company’s share price since the start of 2021”
2 Feb 2021 - Fundraising with a different investor, called One Nine Two Pte Limited. £4m going in at 20p per share. Then a further £6m at 30p per share, if the share price gets to 34p or above for 5 days. 40m warrants with an exercise price of 50p per share granted. Funding will be used to further accelerate growth strategy.
3 Feb 2021 - Trading Statement.
Dev Clever (LSE: DEV), a leading developer of online and immersive career guidance and development platforms and consumer engagement experiences, is pleased to provide the following trading update:
The Company made significant progress in the last financial year, ended 31 October 2020 ("FY 2020"), and achieved accounting revenues of £1.2m, subject to audit, and booking revenues of £2.4m. This represents an increase from £480k and £500k respectively from the previous financial year and is in line with management's expectations, reflecting the considerable progress the Company made during the year.
Still trivial revenues, considering the market cap is now £114m.
Current trading -
Q1 2021 revenues are c.£1.2m, up considerably (but still small)
Booking revenues were substantially ahead of management's expectations and, as a result, the Company expects the rapid acceleration to continue throughout the remainder of FY 2021.
Funding secured, and in the pipeline -
… enables the Company to accelerate investments in additional complementary growth and value generating initiatives.
So we can expect lots more exciting announcements, no doubt! That’s a tried & tested way to keep punters interested in the shares.
It lists all the deals done in FY 10/2020, but with no financial details given for any. So how can we possibly value the shares?
My opinion - I’ll keep an open mind until we get some meaningful numbers from the company, over the next year or two.
For now though, it looks to me like a jam tomorrow ramp! Contracts & unquantified deals, frequent announcements, but negligible revenues & no profits. The funding structure looks odd. Why on earth would you want to invest more money at a higher share price? Possibly so that the shares could be profitably flipped somehow? Or as a device to lead the share price higher? Logically, the trigger for new share subscriptions should be based on how the company performs (profit, revenue, EBITDA targets, etc), not based on a rising share price.
The rapidly growing number of shares in issue, combined with a share price going exponential, means that this share already looks as if it’s detached from reality in market cap, and that could continue - after all look at Tesla. Inevitably though, gravity reasserts itself at some point. It looks like a speculative bubble to me, but good luck to anyone punting on it! It’s a good strategy to get your cost money out I think, with this type of thing, then run the profit for free. That way, when it does crash, no harm done. Plus of course, in this type of frothy market, people can make a ton of money on speculative stocks - and good luck to them!
I remain to be convinced that there's any substance (excluding its cash pile) to this company to justify even a £10m market cap, let alone £100m.
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