Small Cap Value Report (Weds 8 Nov 2023) - JDW, RCH, EAAS, STB, WINE

8th Nov '23 by Paul Scott

85 comments 8501 reads

Good morning from Paul & Graham!

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

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Agenda

Summaries

J D Wetherspoon (LON:JDW) - 676p (pre-market) £870m - Trading Update - Paul - AMBER

Reassures with a decent Q1 (Aug-Oct) update, LFL sales again exceeding industry average. Cost pressures abating, apart from energy, which is high still. Overall trading in line with expectations for FY 7/2024, which implies the PER coming down from high to middling. …

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MetalMaid

8th Nov '23

I have spent much of my adult life being a 'professional' gambler. I was making very good money from poker for about 10 years and this allowed me the opportunity to save enough that I can now live fairly comfortably. I started around 2003 and was playing full time until about 2015. Over the years the poker games got gradually tougher, as the dumb money mainly fell away or got smarter. My personal income levels were dropping significantly and it all became a bit of a grind.

After poker, (as well as investing) I started taking sports betting quite seriously. I was using a lot of statistical models and I was focusing on specific types of betting (mainly smaller track horse races with 7 or less runners). Well as you can imagine, this is not an easy market to beat. The bookies have a spread on the prices, which makes it hard to find mispriced opportunities. Anyway, I had been betting on many online sites. Many of which I had a historical losing account with. After about a year (probably around break even) I finally worked out a profitable strategy, it was still at best a marginally winning system!

Unfortunately my system required me to place bets either the night before or very early in the morning (6am) - so Betfair exchange wouldn't be useable as there was either no market or no liquidity at these times. So I was using online betting sites.

Within one year of me betting, using only a marginally winning system - I had managed to get myself either barred or restricted at every online operator. Most of them took action within only a few winning bets. Some sites barred me when I had even lost money! I think it was Betfred that I placed 4 losing bets, then got an email saying they have closed my account. The reason they did this? Because they can see that a customer placing a bet at 6am at 8/1 must know something if the horse goes off at 5/1 at 3pm. So you don't need to even win, all they need to see is you're backing a shortening price. If they don't see any dumb bets on the account - they assume you're a 'sharp' bettor and take action immediately.

I have always been around gambling. Its something of a culture in its own right if you're in that world. I have known countless problem gamblers, many of which have been some of my closest friends. I know better than most the dangers of gambling addiction (I was myself an addict for many years before poker saved me). I also know how these gambling companies operate. And I wanted to share this with this community so people are under no illusions as to how the majority of the industry currently operates.

The old way was knowledge and skill - (Mr William Hill will be rolling in his grave if he saw how they operate today!). The old way use to be that a skilful knowledgeable bookmaker, who understands the sport and how to price outcomes, would produce a correctly balanced book. They may be happy to have additional exposure to certain outcomes - but basically they trust their own knowledge and pricing models. This means anyone can bet at the offered price, and prices can be adjusted accordingly - they wouldn't care if you were the worlds stupidest punter or the worlds best gambler. The book balances at certain odds and they understand their exposure levels at different price points.

The new way is far more profitable and requires no knowledge and no skill. It is a marketing based model with the objective being to get as many new sign-ups as possible. You then ban anyone with half a brain cell, and hard-sell to anyone who has an addiction (i.e. free bets etc). This model has proved much more profitable. Its an exploitative model aimed at problem gamblers. They have shown time and time again that they have no morals and couldn't care less about the wider impact on society.

Two of my closest friends have lost basically everything to Bet365 over the years. We are talking tens of thousands at the least. While they need to take responsibility for their addiction and behavioural tendencies, it is clear the predatory nature of some of these companies. When they were not betting, they were being harassed with emails and phone calls. Constantly being offered a free £50 bet on tonight's game. One of my friends returned from rehab to a £500 bonus on one of his accounts - its a mute point that he was at rehab (however ironic), but the fact that they would do this just because he hadn't bet for a few weeks says it all.

Also just to note. I have been outright banned from about 30% of online sites, the other 70% only restricted my account. So if I go on Bet365 the maximum I can bet on a horse race is about 5p! So why don't they bar me outright? Because they are hoping that one day, maybe after a few whisky's, I'll chose to use the casino offering - which is not restricted, and I'm more than welcome to lose my shirt.

The gambling industry claims only 1% of customers are problem gamblers. What they never tell you - is how much of the profit is made from this 1%. They count all sign ups as customers, regardless of the activity level on the account. So 1 problem gambler could easily generate more revenue than tens of thousands of other accounts combined. A customer who loses £1 million in a year is still only 1 customer, the same as someone who loses just £1 a year on the grand national. I think we can all agree that these customers are not the same. I have no data to support this thinking, but it is my belief that we would be shocked if we knew how much of the profit actually comes from this small but extremely active pool of accounts. Obviously the industry doesn't want to share this type of data.

So to sum up - It is my opinion that these companies are acting in a predatory way. The banning of, or the overly heavy restriction on winning players, seems not only unfair but contradicts their right to own a gaming licence, where they are suppose to be offering a fair and transparent product to all, without prejudice or discrimination - this behaviour is hidden from the unknowing public. By banning winning players, they go against everything that the smart and skilful bookmaker used to stand for. Now they just target problem gamblers or those that are intellectually vulnerable.

I have written to the gambling commission many times about this. At best I have only received a generic response about how regulations are always being reviewed. There is an argument that the gambling board is not fit for purpose. And that the gambling companies have all the power due to the size of these companies - and such things like political donations etc. So when I see Denise Coats annual earnings are now over £400 million - it does leave a bitter taste that she bans people like me for winning a very small amount of money. Yes she pays her taxes, and good on her for that. But she operates a pure greed model, that is unfair and also has no regard for the negative impacts she has on the wider society. Just my opinion of what I believe is a broken system that has done a lot more hurt within society that many other sectors that seem to get a worse wrap. So much so that most people are unaware that this is how the industry is operating.

There is a youtuber trying to shed light on these dark antics within the betting industry. Below is a link to one of his short videos explaining some of what I have discussed.

Apologies if this post was a little long.

BET365 EXPOSED - YouTube

tony akram

What a great and insightful post ....fantastic !!

BnB

What a great and insightful post ....fantastic !!

Seconded. And that’s why gambling stocks are off-limits for me

RichardK

Today we have sen the inadequacies of three financial regulators (SFA, SFO - see also many past issues Private Eye - and the Gambling Commission) described on this site, as well as frequent references to the inadequate regulation of AIM by the LSE. Does the private investor have any realistic protection?

raggedtp

Absolutely!

Snazzytime

hi MetalMaid

I can confirm the accuracy of your excellent detailed post, written in clear detail and hence easily understood by those who are not familiar with the industry.

Following a lifetime of being a recreational losing punter on horseracing whilst being in full time employment and after taking voluntary redundancy over 20 years ago I became a successful and more disciplined punter earning a tidy supplement to my pension income.

In the early years I could get easily get my bets on (by phone or online) with plenty of established bookmakers. My annual turnover was around £250k (total bets). All my bets were placed either the night before racing or first thing next morning. I was able to cherry pick the best odds enabling me to have a margin in my favour by consistently beating the starting prices. Of course I had to put in many hours of studying races and replays to be able to form my own views to help me identify clearly mispriced horses.

In the past 10 years or so it became progressively harder to get bets on with bookmakers operating with increasingly tighter algorithms which enabled them to more easily identify people like me (and MetalMaid) from profiting from our strategy. This triggered account restrictions and closures.

I have had over 50 accounts closed or (more usually) heavily restricted. This includes accounts I subsequently began opening and operating in the name of friends and relatives (with their help and permission of course).

I have had 6 or 7 accounts closed by all of the major bookmakers and many other accounts with minor online firms. Nowadays I can only get a (modest) bet on with 2 bookmakers (but on their terms, not mine) so my turnover is now only around 5% what it was. I'm effectively a Persona Non Grata with UK bookmakers. I'd classify that as a restraint of trade.

Bet365 were the first to come down heavily with restrictions, probably because they always had the superior IT systems having been the first UK bookmaker to go 100% online.

As MetalMaid makes clear, bookmakers now only want to accomodate recreational punters, mugs and known heavy losers (whether addicted or not). They are leaches.

I have written to my MP about this but only received a bland response. At least I got it off my chest but I wouldn't expect there to be any political will to help winning punters get their bets on!

Finally, The Gambling Commission are currently proposing to introduce intrusive financial checks on punters which will likely have a major negative impact on the horseracing industry revenue. The Gambling Commission have just added some new appointments to their board (3 I think) but interestingly none of those 3 nor any of the existing members have any experience of the betting industry. God help the industry.

Rant over but thanks to MetalMaid for raising the awareness.

Snazzy

Threepeat

Not a shareholder in spoons but an enthusiastic regular frequenter with my pal where we discuss the market and use their WiFi to do so.

Only foray to their hotels is the one in Tewkesbury where the garden backs down to the river, not a good place to be in the flooding. Good experience, just upstairs from the pub and eatery. Old staircase and uneven floors and doors but a wonderful view over the Severn. Would certainly return

The Phoenix

This so resonates with me one fella I used to work with lost 400k through gambling, wife and kids knew nothing about it until the house was repossed he went from one of the nicest chaps you could meet to someone who would rob you for a fiver at the end.

My best friend lost over 100k contacted all the online gambling companies to say close my accounts and weeks later he was getting emails saying we have put 5k in your account come back.

The amount of lives ruined by this industry is huge it does get my goat that some sports personalities promote these sites when many of the fellas they used to play with have lost millions in some cases.

The difference with gambling with other addictions is generally it takes time to kill yourself from drink or drugs but with gambling you can ruin your life in weeks.

You could argue gambling addicts would always find ways to destroy themselves and thats probably true but having seen the tricks used to snare my best friend I have no doubt the industry is geared to milking the 1% of addicts for every single penny possible, awful industry.

Paul Scott

I just had to mystery shop one of my local 'spoons here in Bournemouth, after writing about it today, the "Moon in the Square".

Quick version - perfectly acceptable. Amazing fish n chips - probably the crispiest, best cooked fish I've had in ages, good sized portion too. Overcooked, tasteless peas though. And it only cost about £10.50, which included a pint of Stella. Free Wifi worked well.

Bad points? Totally indifferent staff, who didn't even pretend to give a s#it about anything or anybody. Still, at these prices, who really cares? Is it worth paying an extra fiver for a fake smile? No.

I could see myself even holding business meetings here in the afternoons, as the booths were plentiful and private.

An influx of children (well, more like toddlers) with their parents at about 16:00 spoiled the ambience a bit (I can't stand kids in pubs).

I popped into Revolution Bars (LON:RBG) on the way home - a howling wilderness as usual, despite doing permanently discounted Amstel for £2.99/pint. The staff are lovely there, but I can't help feeling the format doesn't have any appeal any more, other than for Saturday nights. Too much competition.

Regards, Paul.

Roger Baron

Strange then, John2 that you wrote "Thus, blowing the doors off would have been meeting expectations, not completely (and destructively) exceeding them. Yet people seem to think that the phrase means exceeding expectations."

Certainly not something to get annoyed about anyway John.

dhh1

I'm currently away with work and staying at the Dunfermline Wetherspoons - The Guildhall & Linen Exchange.

Can't fault it really and £3.32 for a large glass of plonk is helping me get over my portfolio performance of the last couple of years!

doctor dave

....which is presumably what Wazza The Great meant by his "close the doors" speech.

littledavesab

I think M&S clothing range has got a lot better and is probably looking better to younger shoppers as well guessing at 30+ would consider buying there now.

john2

9th Nov '23

That's a really interesting insight. I used to work with a person who made money betting on horses - he only used to bet on course, for tax reasons as I recall. Would that still be a viable means of making money from betting?

jamesalastair

Flaviius josephus, the chronicler of the Judea-Roman wars, was the first propogandist we know of.

If you are able to gain further insights about the horses from being at the track via monitoring their behaviour then you can possibly gain an edge. However, for the average person this wouldn't be possible. It's really just those people that have spent their lives around race horses that can gain this type of edge.

The main problem with betting at the course is the odds you get are generally not as good as the odds on the betting exchanges. Many of the punters at the track will be using their phones and betting on Betfair exchange.

My strategy (and Snazzy also by the looks of it) relied on getting ones bets on early (often the night before). The track betting only starts later in the morning when most of the prices have already moved.

As I am not qualified I won't comment on the tax reasoning, but its possible that there could be beneficial reasons for dealing in cash and expensing costs.

An all too familiar story unfortunately. Many thanks for sharing.

'I wouldn't expect there to be any political will to help winning punters get their bets on!'

Very well put, couldn't agree more!

It's really a sad state of affairs when we have an industry causing so much harm. I do think all the constant advertising, the very large amounts of markets / exotic bets being offered, along with constant free bonuses / promotions etc is not helping those that might have an addictive personality. And I am sure the industry understands this and targets these personality types.

Sorry to hear about your friend...many thanks for sharing.

Hi nettle,

Yes indeed, I like Zotefoams (LON:ZTF) and hold a few personally.

I've earmarked it for Friday's report, catch up day.

Best wishes, Paul.

TimS

Just as an addition to MetalMaid's excellent post. In my experience online bookmakers don't like punters who only use them when they have the longest odds. They only want mug punters who use them regardless of the value that they are actually getting. I too have had many accounts closed, or restricted, one after placing just 4 bets, all of which lost.

I also used to back a horse with the bookmaker, and lay it off on Betfair if the odds were such that I could make a profit regardless of if the horse won or not (arbing). On one occasion, I backed a horse with Betfred and Tote Bookmakers (owned by Betfred) and simultaneously laid it off on Betfair. When the horse won, Betfred imposed a rule 4 deduction, but the others did not! Another great way to increase profits, and screw the punter.

Small Cap Value Report (Weds 8 Nov 2023) - JDW, RCH, EAAS, STB, WINE

Explanatory notes -

Agenda

Summaries

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Paul Scott

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