Small Cap Value Report (Weds 5 Jan 2022) - CNC, ADF

5th Jan '22 by Paul Scott

78 comments 10281 reads

Good morning! It's Paul here with the SCVR for Weds.

Agenda -

Concurrent Technologies (LON:CNC) - "slightly ahead" trading update for FY 12/2021. I like the numbers - a reasonable PER, good reliable divis, and a superb balance sheet. That provides a decent base for further research by readers on the company's products, markets, and prospects. Outlook mentions an exciting pipeline of new products. Potentially interesting, and worthy of further research, I reckon.

Facilities By Adf (LON:ADF) - a new float on AIM today from Cenkos. I rummage through the Admission Document, and much to my surprise, think this looks quite good. Most of the money being raised at 50p, is to fund expansion, due to strong demand. Founders retain nearly 50% of the business. It has a fleet of specialist outside broadcasting vehicles for the TV/film industry, with 35% market share in the UK. It plans to expand into Europe through acquisitions. Current trading looks good. Just an initial view, but I like

Industry data - Propel newsletter (which I find interesting & useful) provided sector data yesterday from the hospitality sector - based on widely used software. December trade was obviously well down on 2019, but not as bad as I had feared, especially outside of hardest-hit London. It's a useful reminder that there is price-sensitive industry & macro data out there, which we can often access freely to improve our investing. Hence relying solely on the RNS for company specific data could mean we miss a trick. An excerpt -

Hospitality sales last month were down 12% compared to December 2019, according to the latest data from S4labour, the online labour-scheduling management system from Catton Hospitality. London sites’ sales were hit the hardest as like-for-likes fell by 23% on 2019 levels. Non-London sites also saw downfalls, however by a lesser figure of 10%.

[Source: Morning briefing email (4 Jan 2022) from Propel Info]

Hospitality sector experts Langton Capital also provide a wonderful (and often hilarious) free daily email - there's a signup box here (scroll down, on the left).

I mystery shopped the Bournemouth branch of TGI Fridays (owned by Hostmore (LON:MORE) - I hold) last night, and was surprised at how busy it was. If anyone's interested, I can post some pictures & comments.

This reminds me that…

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raggedtp

5th Jan '22

Perhaps just no-one wants to sell their shares any more? It's had increasing good PR from PIs, who (agreeing with Paul) set the actual day-to-day pricing.

davidjhill

Yep 3% favourable currency change and 2.2% on Water utility sale gives around 1464p NAV

so sitting at a massive 52% discount. Pre-covid the discount ranged between 10 & 30% which also took into account the specific country risk, so should look to trade between £11 & £12 you'd imagine compared to the £7 as of today. That would still be a discount against peer group but accounts for the perceived geo-political element. Not quite sure what catalyst is going to narrow that gap in the short term mind. I would have thought the Water sale would have had more of an impact but it has been a bit muted.

rmillaree

Boohoo (LON:BOO)

Doug2b

This is an extreme example of investors complusively following an alleged earnings growth story without ever checking to see if the retained profits ever drop into the tangible equity line of the balance sheet to a level which justifies the MCap.

What a load of cobblers - boohoo hasnt until recently done too bad a job in that regard book value had gone from 73 mill to 481 mill - the point is i am not expecting them to be accruing excess funds into tangible equity at a rapid lick right now i am expecting them to drive the sales of the business forward at a rapid rate reinvesting as much as is sensible in that regard so sales growth is maximised whilst keeping some semblance of decent margins. If you spend £200+ mil in new warhousing and the like for future gain it obviously aint gonna be pretty short term.

There are many ways to skin a cat - look at Amazon over the years i am guesing this would have not presented from the mere numbers as being a quality buisiness as they reinvested within the business to ramp up turnover - not all good businsses pass all the basic quality metrics tests that you are defaulting too - thats a given. Are you saying amazon was a baasket case and have you though you could be wrong along thos similar lines here - presumably you think you cannot be wrong ? .

Take ScS and Plus500

Ref SCS you are comparing a business that has had declining turnover in 5 years to 2021 to a business that has increased sales nearly tenfold and increased profits 5 fold in the same period that really is an apples and pears comparison. Plus 500 is lucky enough to not need the capital type investment that boohoo needs to do well - you could probably argue Pus 500's buisness model is therefore much less risky and you woluld be right but not a reasonable comaprison here due to the different busines types.

The problems with Boohoo are two fold. Firstly it is a weaker business than you think, not a basket case but weaker than assumed. Secondly, you are paying far too much for what is actually there, way way too much.

Firstly it is a weaker business than you think, not a basket case but weaker than assumed.

Well i will agree with you here the jury is out now they have certainly hit a poor patch (note they have previously temporarily hit the rocks too and come back strongly) - facts are we won't really know who is right and who is wrong here until the mop flops in a couple of years time and we see whether their plans come to fruition or not.

Secondly, you are paying far too much for what is actually there, way way too much.

Not necessarily if they end up where they want to be - if they can get up to £4 billion of sales and get close to 7% operating magin and apply 20 times multiple to that the market cap would be 3.7 * what it is now. Thats the kind of path they would be hoping to hit and if they do IMHO thats some decent upside potential from where we are right now.

I guessing you will say thats all fantasy numbers in which case we will leave it there and see how the mop does flop. Note it is clear the wheels have somewhat fallen of the truck this year and that is aligned of a period where they are doing a huge amount of investemnt for the future anyway i can sort of see why you may think the worst - hey ho two opinions make a market.

The problem with Boohoo is that over the past 4 years the gain in tangible equity relative to the MCap is c1.5% pa. Clearly Bohoo is dramatically over priced. This assessment does not factor in any particular recent bad news so the valuation before the price falls would certainly be into the realms of madness.

Fort is opening a new brick plant this year. Investment in such an expensive and lengthy develpopment has held back their tangible surplus for a few years. But its TS is still over 7% currently, likely rising to the mid teens over the next 2 to 3 years. So for Fort I am factoring in the future, but at least I have a valuation starting poin that is half decent. Bohooo will hav to work miracles from here to justify a valuation.

Amazon you mention - as for now, Amazon is not creating shareholder wealth, the share price may be going up but it is not creating sahreholder wealth. Shares are issed every year, without the share issuing, the tangible equity is shrinking. In terms of economies of scale and a favourable tailwind, Covid, it could not have been better of late for Amazon. But the balance sheet reality is there to see, the business is grossly over priced, perhaps their scale of operation is not now helping them.

ScS created a tangible surplus of around 30% of MCap or more last year, Bohoo would take around 25 years to achieve the same. Amazxon may struggle to achieve a net tangible surplus ever again.

I can't believe that I am giving out such basic tuition for free, I hope that you are all very grateful, you certainly should be as it seems like a number of people have been merrily lead down the garden path with Boohoo!

Snowbum

Thanks for the insight Doug2b, I ditched Boo again today.

Epsilon

Over the last 20 years I have been a pure growth investor.

I have achieved success in a number of investments, including 50x returns in the likes of Amazon, Google & Tesla.

However I have today seen the light & will be liquidating my growth portfolio to invest the proceeds in cigarette butt stocks like Scs (LON:SCS) and LGEN .

Thanks again for the insight Doug2b.

Whatever Doug2b- i admire your disciplined approach to investing - thats something to be applauded - and clearly on fundamentals at present Boohoo isnt exactly winning any favours with its poor run - what i do disagree with is your cock suredness that you are right and that its a given therefore that Boohoo is wildly overpriced simply due to the fact it doesnt sit right with your selected criteria - you might be right you might be wrong. Feel free to come back in 24 months and gloat that you were right with this company - i certainly get it wrong plenty so i could easily be wrong here.

yiannos1

Yes we are.

ScS is a better company than Amazon.

God help us all!!

Thanks

Trio

Bought by John Rosier of John's Investment Chronicle fame. The rise came after he'd emailed his subscribers.

Boon

Interesting graph! If I remember correctly, is this based off USA campaign data?

In the UK, my personal experience (and this is a subset of FB audiences, very telco specific) that CPMs have not come down, they are still elevated. Been steady since early autumn. I have had convos with two other digital marketers in the last two weeks, both agency side, and both have grumbled about the continuing high CPMs. Their clients are in different industries, albeit I don't think they have gambling clients.

I wonder if BOTB high CPMs will remain. They compete for gambling audiences with the likes of sports betting. During covid when sports were stopped, they of course saw lower CPMs as the likes of Ladbrokes, William Hill pulled back campaigns. But now sports is fully back.

abtan

Best Of The Best (LON:BOTB)

Hi Boon

Thanks for that, most appreciated!

You are correct, the graph is US-based. BOTB told me that the UK follows a similar, albeit delayed, trend.

Good point on the gambling firms - it's interesting that you mention them as I follow a few (and own one) and I don't recall any mention of IDFA impacts, but there must have been an affect on marketing budgets at some point.

Hopefully there will be a BOTB update soon.

Cheers again

Westway001

You may or may not be right in what you say but your arrogance is most objectionable.

Hmm knowing what I know about FB CPMs, it is a real time auction based on competition and supply for that impression/user. And the auctions for US ad inventory is completely separate to UK. (eg if I wanted to advertise on FB, I'd have to specifically set to target and bid for US and UK geos). So I question the assumption that UK CPMs follow USA CPMs, as there is very little overlap in the advertiser set. Especially for gambling audiences.

jamesalastair

What a lovely and useful post Homosap .... thx for sharing. I recognise all the issues you raise!

6th Jan '22

Yes, because of the way that it is priced. ScS is now generating huge returns relative to MCap. This makes ScS a significantly better investment than Amazon at current prices.

You misunderstand the term cigar butt investing. The businesses that I reference are rapidly growing their tangible equity year after year, they are no cigar butts.
Take the SMT fund. Comfortably behind my 12+ year SIPP performance, but I am well behind during the past 5 years.
The tangible surplus - equity growth and dividend, expressed as a % of MCap - for my holdings averages over 10% now, but for SMT it averages between 1% and 2%. SMT (and Fundsmith) are riding a price bubble and so are many of you. This will not end well for you.

BIACS

How do you define tangible equity out of interest? Tangible assets only minus all liabilities minus preferred stock? Do you also factor in share options? Genuinely interested.

I think you would get your messages across better by having a slightly more moderate tone - there is much sense in what you say and some good reminders here (whilst not being the only view of the world...) and I would think the community could benefit from hearing more of it, albeit in a more sociable manner that would facilitate discussion and learning rather than one-upmanship.

You actually think that ScS generates huge returns ??

Wait and see.

As I said :

God help us all!!!

homosap

Many thanks for that suggestion.

Interesting, thanks. That seems to be quite late to the game for John. But he does have quite a few followers.

Small Cap Value Report (Weds 5 Jan 2022) - CNC, ADF

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Paul Scott

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