LON:RBG | The BBB Fund Monthly Recap – Sep 2021 [ISA -0.4%, SIPP -0.8%, FTSE-All Benchmark -1.2%]

1st Oct '21 by Boon

20 comments 1877 reads

To read the introduction, see July’s article here. Aug monthly update here.

Do leave me a comment with your thoughts; I'd love to hear your views on any overlap holdings, or your views on the market and interesting shares!

(Part Time) Fund Manager’s Report

Another slightly negative month, although this time both portfolios have done better than the FTSE All-Share benchmark (-2%). And when compared to AIM100 (-5%), my ISA has done pretty well, despite all the shares in there being AIM listed.

Still, two negative months in a row is frustrating. I know I shouldn’t feel that way and instead feel relief that at least in September I’ve outperformed the benchmarks. But a red number still has this primal psychological effect on me, that I have lost.

In the ISA, I have been disappointed that it hasn’t done better, despite positive statements from Appreciate, Begbies Traynor, and the announcement of a potential bid for French Connection. Still, I have been reassured by the positive updates and decided to continue to hold for further upside Sosandar and System1 have been the performance drags; but I’m looking forward to a positive trading update from Sosandar soon. And on System1, the price is now low enough that I am looking to top up if it gets any lower. My continuing monitoring of both businesses show they are still in rude health, so I see no reason they will not announce positive trading updates shortly.

Looking at Appreciate (LON:APP) , it seems like the business is accelerating and in rude health compared to pre-COVID. "Billings" (which are sales of gift cards and vouchers) are up +14.6% in Q2 (Jul-Sep) compared to the same period in FY20 (Jul-Sep 2019, pre-COVID). Appreciate only recognise revenues when the cards/vouchers are redeemed, so this is like an "order book" that will translate to revenues and profits in the next 6-12 months. There are tough comparatives in Q3 coming ahead, as last December, companies replaced xmas parties with gift vouchers. But IMO, as outlined in my July Report, I think there are some key structural drivers that will see increased revenues and profits in the next 3 months. In addition, there is likely to be a shortage of all kinds of in-demand Christmas gifts (toys, electronics, etc) and a lot of people might then give a gift card instead, so the…

Unlock with Email

Unlock with Google

Already have an account?
Login here

abtan

1st Oct '21

Fantastic update Boon, thank you.

And it looks like a great performance too. I've had 6 down months in a row now (September was almost a positive month, but everything slipped on the last day) so I remain jealous of your 2-month negative run.

I'm looking forward to seeing what tiddlers you think might worth buying in the next few months.

As for me, I've been looking to top up a few current positions too given the depressed market.

Today I took a look at Bloomsbury Publishing (LON:BMY) , Ig Group (LON:IGG) , Air Partner (LON:AIR) , Everyman Media (LON:EMAN) as potential top-up candidates.

With the latter I'm gobsmacked by what looks like extremely high sales for the next 2 weeks for 007 (it is pretty much the only movie showing in their cinemas).

I used to work for one of the major studios so having such high occupancy for the same movie for 2 weeks is highly unusual; there would usually be a steep drop-off after week 1.

This could ultimately lead to some serious upside in H2, especially as the company is still benefitting from reduced VAT + higher ticket prices + higher food and beverage spend (and it's a 3 hour movie too).

For reference this is Esher tomorrow:

This is one screen in Esher in 2 weeks (October 13th):

---

On your point about Best Of The Best (LON:BOTB) ad rates, it looks like Facebook CPM rates have returned to more normal levels, though with Apple continuing to role out iOS privacy updates I remain wary of marketing effectiveness in the short term.

If I didn't already hold I too would probably wait for the next update, though I should also point out that the company offered some additional ad hoc prizes in the week just gone. In the past, this was always a good sign...hopefully it is this time too.

Cheers

Boon

2nd Oct '21

Hello again, abtan!
I really love your detailed deep dives and the way you find extra data points.

I've also got Everyman Media (LON:EMAN) on my watchlist, and I also agree that next few months we might see the pent-up demand there, as cinemas haven't really had a good slate of releases over the summer months so far. Also it had a strong business model pre-COVID, and with competitors (Cineworld, Odeon, Vue, etc struggling with huge debt piles) now weak, and cheap rents, it has an unparalleled opportunity to expand. But for me the business model is still unproven; pre-COVID it had yet to demonstrate consistently good ROI and margins. In addition, current EV means its trading at a valuation of c£4m per venue, which is a high IMO. Definitely not a bargain. In order for this to re-rate 40%+ (which is my 12 month target hurdle) it will need to deliver pent-up demand AND successful new openings AND sustained increased margins. So I'm still on the fence at the moment, but it is on my watchlist.

Best Of The Best (LON:BOTB) - thanks for the ad rates graph! is that for just the UK or globally? I had a look last week (albeit not a whole market view) in the UK and it was still elevated 30-40% vs Q1-2021.

I also believe that medium-term, the digital marketing team at BOTB must be expanding their ad spend to other socials like Snap, TikTok, Twitch so I if anything they'll recover stronger and not be dependent on one marketing channel as they are now. Also keeping an eye out for a buying opportunity here.

Thanks for flagging up Ig Group (LON:IGG) ! Regretted not pulling the trigger earlier this year at c750p due to my worries about the big price they paid for Tasty, but see its now drifted back down to c.800p and broker forecasts are up since then, plus I'm guessing Tasty has been performing OK post-acquisition. Will do some research on it this weekend, update my notes.

On Bloomsbury Publishing (LON:BMY) it has perennially been on my peripheral watchlist as a quality company. Missed the boat too over the last 3 years. Still have a conviction that the main Consumer publishing side of the business is cyclical (ie dependent on getting a few hits a year, towards Xmas, and also on HP sell-ons) and been waiting for that profit warning. But its continued to deliver year after year. And their B2B/academic division is now a bigger part of the business, so offers that stability of revenues to offset the cyclicality of the consumer publishing. So will also have a deeper look this month, to see if I'm now comfortable with the diversification of the business, to pay c20x PE (although I note that its really a better c16x if you look on EV basis due to the cash).

Love this as I've now got some inspiration to look at this month for my portfolio!

Rusty2

I think Ig Group (LON:IGG) are a good buy at the moment, I did sell out when Cmc Markets (LON:CMCX) gave a profit warning and the sahres have fallen back now. The summer was very quiet in the markets but we are seeing much more volatility in the last month and I think there will be more to come.

Momoko Miyamoto

There's been a lot of retail investor interest in Rolls-royce Holdings (LON:RR.) of late. I think it could be a bit of a value trap. The much hyped small modular reactor development is years away from being a done deal and may come to nothing. On the aero engine side, the company is paid per flying hour by aircraft operators so revenue recovery is dependent on long haul flights returning to pre-COVID levels - again a lot of doubt as to if/when this will happen IMO.

I think Moneysupermarket.com (LON:MONY) will take a significant and long term hit to revenues due to the ongoing collapse of small domestic energy suppliers. Consumers will have fewer switching options in future and the price savings on offer will not be as compelling to incentivise switching. For now the energy switching market has pretty much been frozen.

I bought some Phoenix Group (LON:PHNX) shortly before the Swiss Re sale as an alternative to holding cash. Management buying is reassuring but the company is a bit of black box to me so not comfortable increasing the position.

You're right on Rolls-royce Holdings (LON:RR.) - the small nuclear reactors have still many hurdles to jump, and probably almost a decade away.

On Moneysupermarket.com (LON:MONY) I actually think the current share price drop is overdone. Energy Comparison as a proportion of their total revenues isn't that high (don't have the figures but I remember looking into it). And as long as there will be 10-20 suppliers left after this convulsion, that will still provide a solid enough competitive pressure for MONY to extract their rent as a middleman. Wondering if they will have a bit of bad debt to declare from the bankruptcy of energy companies; industry standard is they get paid around 3-4 months after a customer signs up, so they have about 3 months average of revenues that they'll need to write off from the suppliers that went bust.

As long as they have enough partners to create a full deck of "listings" in their comparison table, then their "conversion rate" from visit to sale will still remain high. And with the huge surge in traffic now as people look to switch and fix, they can only benefit.

On Phoenix Group (LON:PHNX) I just remembered that that Swiss Re lock-up period has expired 25 Sep. And they haven't sold further... yet. So tentatively a good sign they think it is too cheap at the moment? They sold at 660p a share in June, which was more than 10% discount to the prevailing market price at that time (but was that also an ex-div price? too lazy to check!)

The issue with energy prices is there will be more or less the same prices, so less people will switch. Be interested to know the proportions of revenue from each type of business. Having had a problem with a comparison site last year I will probably just go direct in the future.

Simon Rowan

4th Oct '21

Good post. Yes Saga is a bit of a no brainer for me , having met the man, Sir Roger on a couple of occasions. Not that that in itself is the sole reason for investing but I have seen first hand the benefits of his generous philanthropy in and around Saga's hometown with the proceeds of his sale of SAGA. I can't deny when I heard of his return to the helm that this was a very strong influence. Things are not quite what they seemed at the time of his comeback. The fact that two institutions have been selling down consistently since the placing, Setanta and Aberdeen and the protracted pandemic which I don't believe most of us expected to last this long initially, are possible two good reasons for the volatility and continuing underestimation of potential and confidence.

Intercede is another stock I have held for a while. I think it was Mark Taylor who first brought it to my attention and Paul Scott is also a long term investor and commentator.

I hope you are wrong about about how a tech route would effect IGP.

I agree they can be an illiquid stock , but have found them very tradable at certain time too. In fact I would say I have found them harder to buy than sell. Obviously with such a small number in circulation it is best to trade in batches if you want to buy or sell a large holding.

They paid off the CLN in the last 12 months, mostly converted to shares, they have had a couple of creditable institutions join the fold, Lions and Herald. Updates although not earth shattering have been consistently positive.

The latest on September 15th: Intercede, the leading specialist in digital identities, credential management and secure mobility, is pleased to announce multiple major customers have chosen to upgrade their existing MyID deployments to enable them to benefit from new product features and platform capabilities. This is followed by a long list of influential sounding companies and organisations, un-named for security and confidentiality reasons.

When you consider the rise of Darktrace ( I know they are nowhere near comparable in size) I think it is reasonable to consider the cyber security sector is rather different from some other 'tech companies' that benefitted from lock down. Indeed the pandemic has unquestionably stifled some of their market which has clearly been lifting off again. May have been a tad expensive, but this is quality. The fall back from a high of £1.20 to 92p looks vastly overdone already. No doubt the update due any minute will prove me entirely wrong! GL

5th Oct '21

Hi Boon

Thanks for the nice comment and apologies for the delay in responding.

I know that there are some smart people here who don't see the Everyman Media (LON:EMAN) upside the same way that I do, which often makes me question my own rationale for holding. For now though I remain optimistic.

Pre-covid, and excluding expansionary capex, the group was quite cash generative and had a decent ROI (£0.8m-£1.0m to kit out a new venue vs c£0.5m cash generation per venue per year.)

The group was generating £12m-£14m of cash per year (pre-expansion capex) which gave a good foundation for self-funded expansion. The EV is currently close to £150m, so it doesn't seem overly expensive if things can simply return to normal. I should add that 7 new venues are scheduled to open in next Financial Year, to add to the current 35 venues.

My other hope is that one of the big streaming firms comes along and tries to buy them.

The last I read (which must have been last year) Netflix were purely focussed on staying online, whilst Amazon was rumoured to be looking to acquire a US-based cinema chain.

As for your +40% target in 12 months, I doubt the share price increase would be that rapid, so I understand your hesitancy to invest. More long term, however, I remain more bullish.

Best Of The Best (LON:BOTB)

"thanks for the ad rates graph! is that for just the UK or globally?"

It's actually for the US. I asked the company whether it was a useful graph for me to monitor and they responded that it "should be treated with some caution but there are definitely correlations with what we have seen over the past year. Fingers crossed UK CPMs follow the US trend, coming down from their peaks."

I didn't think Best Of The Best (LON:BOTB) actually had much of a marketing team and I figured that marketing was simply outsourced, but yes, the diversification to other platforms (Tiktok, etc...) is now surely inevitable and could be a surprising boon (no pun intended) in the long run.

In the short term, I'm actually less worried given that customers recruited per-covid were spending more now than 2 years ago - a solid base.

I should also add that the ad hoc prize this week has been increased again (from £25k+ 25% off ---> £50k + 25% off) - desperation or a sign of recovery?

Bloomsbury Publishing (LON:BMY)

Harry Potter revenues as a % of the group have actually been declining over the last few years from 25% of group revenues in FY18 to 20% in FY21.

It's clearly a good sign that they are less dependent on HP, but it's also nice to have "passive" income in the background.

There is a new HP movie coming out next year too (and I imagine more for many years to come) so this should also help the longevity of the business.
Cyclicality was my concern before buying too, which is why I like the BDR business so much. If they can keep this part of the business growing at its current rate, my opinion is that it will justify the current market cap alone in just a few years.

Ig Group (LON:IGG)

I actually don't think Tasty is growing as fast as the company thought it would.

The Annual Report implied that it would grow >25%-30% in the short term.
Yet on a pro-forma basis it was only up 16% in Q1.

Analyst revenue estimates for the group do seem quite low right now - perhaps justified after the Plus500 (LON:PLUS) update last week, which I read negatively @ c-20% Customer Trading Income for H2 - but for caution, if the Ig Group (LON:IGG) consensus is correct, then cash generation would still be c£350m for the year.

Even on a low multiple that seems quite cheap for a quality company with an EV of c £4b and which does well in volatile times.

In the meantime, the dividend is decent. I heard in a podcast recently (perhaps Capital Employed?) that high dividends make it possible to be wrong for longer - I liked that and feel that it could certainly be applicable here.

Moneysupermarket.com (LON:MONY) (I hold)

Energy switching was 75% of Home Services revenue according to a presentation I found from a few years ago.

Applying this % today and assuming revenues are £0 in Q4 (and not accounting for any additional revenue from their new mortgage comparison service, which one would assume would be very popular now) gives me revenue of at least £314m this year.

This is below the £334m I can see on the Stock Report.

Plugging all that it I still see the company generating c£80m of free cash flow this year.
The current EV is £1.1b.

I would easily apply a multiple of x20 for this sort of business - it's high quality, well known, ranks superbly in google and generates lots of free cash and can buy up and coming competitors easily.

When the travel revenues + energy switching revenues come back - this should, in my opinion, be worth far more than £1.1b.

Well, I hope so anyway.

11th Oct '21

Ah, Murphy's Law strikes again in the case of Intercede (LON:IGP) !

It has now fallen below my buy target price, which was 87p. I'm surprised, as a quick skim of the trading update today seemed to be OK. Need to compare to broker expectations, and my notes. But clearly lots of holders were expecting more, and therefore sold today to exit.

It is now on my list to update my research and analysis, based on the TU. Going to wait a day or two, as I often find with -5% or more plunges, you get further share price weakness, and therefore its better to wait until the dust settles and also you have all the broker notes and forecasts out. Along with potentially other analysis (IC, Telegraph, etc... although probably not in this case as its still a tiddler).

16th Oct '21

Good call dahokolomoki. Like a lot of stock recently this fall is a bit of a surprise.

Have just watched IGP's Meet the Company presentation from June again. Firstly Klaas is extremely confident about his company and pretty knowledgeable about the competition or lack of it. USA market has experienced little or no disruption to business ( 'there is no product in the US quite like ours') where as ROW has been very flat. Very well worth an hour + to revisit that presentation.

17th Oct '21

Indeed, the IMC presentation for £IGP was quite illuminative on their potential and moat in the market.

However, having crunched my own numbers, I think FY22 EPS is likely to come in at 2.3-2.4p, which is lower than the current broker forecast of 2.6p. In situations like this, there's often further drops once brokers downgrade / results release. Personally, I would only be willing to invest when its below 25x PE, which would be in the below 70p (when also taking surplus cash into account, for more of an EV view).

I suspect that I'm being a bit too pessimistic in my valuation, but I've gone quite bearish on anything tech related recently, as the combination of rising yields and the negative momentum in FTSE tech is not offering great support for high multiples at the moment.

19th Oct '21

IGP:'I suspect that I'm being a bit too pessimistic in my valuation,'

Not necessarily. I think the pe has been a bit of a mystery to me, being as high as 40. I did sell about half my holding then, even though I thought the updates on Fido and partnerships do look potentially like justifying the higher PE. The results however, although good, do look a little pedestrian. Have jut noticed IGP has passed the free cash flow cow screen on stockopedia. Not seen one of those before!

The big questions are is The ROW business picking up and how serious are they about an acquisition or merely in a good position. Could be that that has pressured the sp. Although there has been some tech sell off according to Edmund Shing I think that applies more to US stocks than this kind of small cap.

I did ask about Darktrace (with their recently announced 35% growth revision) but they assured me they were in very different markets.

I'm thinking more about acquisition. Strong cash position and strong institutional support. Looking to drive double digit growth. Depends how big the acquisition might be, but they have suggested the support will be there which I don't doubt. The rest depends on Macro economic outlook which you have already pointed out in your excellent synopsis above. GL

8th Nov '21

Just wanted to update in case anyone was waiting for an October update! I'm currently on holiday and struggling to publish easily on tablet/phone. So will be skipping and doing a Nov update instead.

Overall my Oct performance has been flat; which is disappointing as the FTSE has been up c2%. Drags on performance has been Rio Tinto (LON:RIO) and £SAGA. During Oct my main purchases has been £SGLN and Time Finance (LON:TIME) and main sell has been French Connection (LON:FCCN) without waiting for takeover to complete. I have topped up Appreciate (LON:APP) .

In Nov, I have decided to hedge with a short S&p500 using £XSPS . I feel that Q4 comparatives are tough, supply chain issues and inflation will bite harder, the market has gotten a bit ahead of itself, and further Treasury yield rises are likely putting pressure on share prices in the USA.

The BBB Fund Monthly Recap – Sep 2021 [ISA -0.4%, SIPP -0.8%, FTSE-All benchmark -1.2%]

(Part Time) Fund Manager’s Report

Unlock the rest of this article with a 14 day trial

About the Author

Boon

20 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...