Snoozebox (ZZZ) - speculative share idea

I usually focus on value type investments, but every now & again something more speculative crops up which fires up my interest.


Snoozebox with the imaginative ticker ZZZ, is a recently Listed (1 May 2012) small cap. The Placing price (it raised £11m after expenses on Listing) was 40p, and the shares have since risen nicely to about 54.5p. With 51,295,000 shares in issue, the mkt cap is £28m.


The concept is really clever in my view. Snoozebox creates temporary hotel accommodation from standard size shipping containers. Check out their website here;
http://www.snoozebox.com/home/index.html#welcome


Moreover, they have patents pending on the concept of using standard shipping containers for accommodation. The big advantages are that they are easily stacked, transported using standard trucks, can be sent anywhere in the world easily, etc. They're also cheap, robust & long-lasting.


The product is in demand, and working, so it's now simply a roll-out. Each unit (a small, en-suite hotel room in one quarter of a shipping container) costs about £27k to fit out, but can then be rented out for £200+ per night at events. 


The rooms look stylish, and have wifi, a safe, an en-suite wet room, power & light of course, keycard doors, etc. Services are provided by Snoozebox using mother units with their own generators, and storage tanks. They do NOT need connecting up to any mains services, so can genuinely be supplied anywhere.


Sales have had an impressive start, with Snoozebox already securing these events: Queens Diamond Jubilee (256+ rooms at Windsor Home Park), Isle of Man TT race, 80 rooms at Download Festival, 160 rooms at Hop Farm Festival, 144 rooms at Goodwood Festival of Speed, 240 rooms for Silverstone Grand Prix, 320 rooms for London Olympics, etc.


So it's clearly working! The beauty of the roll-out is that they can add more rooms quickly & easily, and finance them on leases. So I doubt there will be the need for further shareholder dilution.


Management are experienced leisure sector people, quite old at 60, so maybe their last throw of the dice? The one question mark is over the CEO, Robert Breare, who is being sued by the administrator & liquidator of a company he was formerly CEO.


The house broker Panmure Gordon is forecasting £3.8m EBITDA for 2013, which would surely attract a very high multiple due to the growth potential? So I can see potentially big speculative upside here. Although the shares already price-in a good amount of optimism.


As usual this is not any kind of recommendation, just a report of something I find interesting. I hold a very small number of shares in ZZZ. As always, do your own research! This share is by its nature more speculative than most.


Please post any comments below, I would be interested in your views.

Mon 13 July morning report

Good morning, yes I'm back, having been able to drag myself out of the sick bay for the first time in ages. Battling a chest infection, but I seem to be winning at last.


A very quiet morning, but here are a few RNSs which caught my eye this morning.


Dunelm (DNLM) the homewares retailers which recently announced excellent sales growth, is hosting an analyst presentation - http://www.investegate.co.uk/Article.aspx?id=201207130700025204H

Very good, but I hope they will also follow best practice by making the slides available to everyone on their website, or even better to put up a webcast of the presentation part of the meeting.


Yes the company is trading very well, but it looks pretty fully priced to me now. Let's hope HOME are looking closely at what Dunelm are doing, and making notes.


Capital & Regional (CAL) notes a fall in the value of it's The Mall fund. Hardly surprising, given that high street rents are now completely out of kilter with trading, and need to fall substantially. HOME indicated at their latest AGM that lease renewals are seeing average rental falls of 16%, so this is a timebomb for owners of retail property - who are squeezing tenants dry through their use of the awful, antiquated, 5-yearly upward-only rent review system. This consigns us to many more years of pre-pack administrations, allowing weak retailers to shed their loss-making shops with impunity, whilst the financially strong retailers are forced to bear the brunt of massively over-rented shops. All of which stifles innovation & new life coming through. No wonder our high streets are such dreary places these days, with the same boring identikit chains of shops everywhere. There's more of that to come I'm afraid, so companies like CAL are best treated with a bargepole in my view. They need to prop up the freehold values for the sake of their own balance sheet, but in doing so they are killing off the high street.


The high street needs a radical overhaul, with shorter leases, monthly rent payments, and rent being pegged at a percentage of turnover, flexible both up and down. That would give us back the vibrant and interesting high streets we want!


Nothing else to report, have a good day all!


Oh, if you haven't already seen it, check out my post from last night about company videos.

Company videos

Hi,


Just a quick note to apologise for radio silence this week, I came down with a nasty chest infection on Friday & have been confined to bed for 5 days with a fever & general feeling awfulness. Unfortunately I was staying with friends, so turned into their worst house guest ever, lying in state demanding soup all the time!


On the mend now thankfully, so my morning reports will resume tomorrow.


One interesting project that I couldn't miss happened today. Some time ago my old friend David Stredder, who has probably done more to help private investors than anyone else I know, asked me to get involved with an idea he had to make some videos of meetings with company management. The idea came from the success of his "Mello" investor evenings, where up to 80 investors come along to meet management of a number of small caps, and then eat/drink/network afterwards. They're excellent events, but for every person who can make it to such a meeting, there must be dozens more who are not able to attend.


So Dave came up with the idea of him & I going to meet management of companies we think are good investment ideas, taking a small film crew with us, videoing the meeting, and putting it on the internet for anyone to watch. Thus disseminating useful info about good quality small caps to all investors or potential investors.


We decided to give it a go, and did the first one today. I have no media experience, so was pretty nervous, but as soon as I start talking about shares, all nerves disappear, and thankfully that happened today. The video should be ready in about 10 days we hope, so I'll put up a link here to it (and other interesting videos we see out there that others do - there are several people active in this space).


Where I think Dave & I have a unique edge is that our videos are real, experienced investors, having an informal meeting with a company Director(s), and just chatting about the company - so it's a fly on the wall situation of an actual investor meeting, rather than PR fluff. We're not soft-soaping them, but neither are we doing a Jeremy Paxman either - it's just how we would be in reality - i.e. courteous, but asking the questions which seem pertinent to us. Dave also asked in advance on the company bulletin board what questions other investors wanted to ask.


It went really well. As our first attempt, I'm sure people will criticise elements of it, and we will welcome all feedback, and ideas for improvements once it's published.


As regards fees, Dave didn't want any payment at all, but I wanted a very small fee just for my time & travel costs (as it was not a company I already held shares in), plus of course we had to hire the film crew, so we charged the company concerned a very small fee, but it was on the understanding that we ask the questions we want, and we edit the video how we want. So as independent as you can get hopefully - both Dave and I value our reputations far too highly to put anything out there which compromises us.


We hope investors enjoy the videos, as we've got a couple more planned, but the vital element is that WE choose the companies! So we're turning away anything that isn't something we would personally invest in. That's the key point of difference, compared with the PR spin for rubbish companies that you may find elsewhere.


I became cynical about meeting management of companies, as after all it's their job to be likeable and believable, so in the past I've maybe been too gullible in believing stories that were weak. But these days I'm a bit more cynical, and think providing you avoid the temptation to get pally with Directors, then it should be possible to remain objective.


With the latest micro cap trying to De-List, and therefore destroy shareholder value, Lighthouse, it's a real minefield looking at micro caps. Hence one of the questions I asked the Chairman of the company we met today (Plastics Capital) is whether he was committed to retaining the Listing. We got an emphatic confirmation on that point, so that point alone was a useful outcome. We also cleared up a point over another Director's departure which had caused consternation amongst private investors (when it needn't have done). So a very useful day.


I'm still feeling pretty groggy, but will get up at 7am tomorrow to resume my morning reports.

Begbies Traynor results audiocast link

The presentation slides which were discussed at the Begbies Traynor analysts meeting yesterday are now also available online in an audiocast with the Chairman & FD. Well worth a look if you're interested in this company. Here is the link;
http://www.brrmedia.co.uk/event/99090/ric-traynor-executive-chairman--nick-tatlor-group-finance-director

Fri 6 July 2012 - morning report

Good morning. Very little news this morning. Please see my report on Begbies Traynor analyst meeting from yesterday - a good company, now focussed on core activities. Looks cheap to me, on a PER of 5, and various reasons to expect a re-rating. In the meantime a 7.3% dividend yield keeps one more than amused.


Aga Rangemaster (AGA), the maker of expensive cookers, and operator of Fired Earth shops, reports a bit of a mixed bag in advance of its interim results for y/e 30 June 2012, due to be issued on 24 Aug 2012. Sales & profits are expected to be slightly down, but they confirm the outlook for the year as a whole (due to cost cutting & new products).


At first glance AGA looks like a great cyclical recovery share - hence looking forward to economic recovery could see the shares go substantially higher. However, the elephant in the room is their pension deficit, which looks to me to be sucking up pretty much all the profit & cashflow the company is likely to make in the next few years.


This big issue is rather glossed over in today's statement, which says that the pension fund was fully funded on an accounting basis as at 31 Dec 2011. However that is misleading, since there was a yawning gap on an actuarial basis requiring very large overpayments. I do wish accounting standards would be changed for pension funds, as there currently seem to be 2 completely different methods of calculating deficits, leading to widespread confusion.


All in all, my view on AGA is that it's potentially interesting, but the pension issue is so large relative to profits, that it makes the shares uninvestable in the short term.


A very unusual set of results from PSG Solutions (PGS) announced this morning. Profits at their specialist electronics division have shot up from £1.5m last year to £11.6m! However this seems to be on the back of one-off MoD contracts. Nevertheless, with net cash of £17.3m (despite tender offers for share buybacks), against a mkt cap of £27.8m, this one looks potentially interesting. Worth a look, but not easy to analyse, given the one-off nature of their MoD contracts. They also have some smaller operations in property services, and packaging. The former has moved from losses to profits.


I started to look at results from Coms plc (COMS), but gave up when I saw how tiny the numbers were, plus it's loss-making and seems to have almost run out of cash. It really is daft having such tiny, early stage companies Listed on, and clogging up any Stock Market. The rules need tightening up in terms of requiring more trading history before being eligible to List.


That's about it for this morning, a very slow day for announcements. By the way, I don't cover the resource sector here, as it's not a sector I understand, hence avoid. And plenty of other people cover that sector elsewhere.

Begbies Traynor (BEG) results (5 July 2012)

Voluntary disclosure: my family hold a small amount of shares in this company.

I went along to the analysts meeting this morning for Begbies Traynor (BEG), the only Listed pure play insolvency practitioners. This is a specialist & highly regulated area of accountancy, with high barriers to entry (the qualification is very difficult indeed to obtain). Today's meeting gave me the opportunity to meet the Executive Chairman (and 29.7% shareholder, Ric Traynor), and the FD Nick Taylor - both of whom impressed me as being down to earth and focussed on delivering shareholder value.

I know a bit about this sector, as when I did my chartered accountancy training with Price Waterhouse in the recession of the early 90's, they transferred me from audit into insolvency, and I helped in the Receivership of a Rolls-Royce dealership, a hotel, and a leisure group. It's difficult & delicate work (I still remember an angry ex-employee bursting into the premises & threatening me, and another time when all the locals came into the hotel bar to take the mickey out of me doing a stock-count, suggesting I needed to count all the matches in the matchboxes, to general hilarity).

Also I've been on the other side, buying a business from the Administrators about 10 years ago, who happened to be Begbies Traynor!

They are well known, and the market leader of small to medium insolvency jobs. Their main competitors are the big 4 accountancy firms.

I would describe the results as reasonably resilient, with turnover slightly down at £57.7m, and adjusted profit before tax of £7.4m (prior year £8.1m). That translates to adjusted EPS of 6.0p (prior year 6.4p).

At 30p the shares are therefore on an adjusted PER of just 5.

The market cap is £27m (with 90m shares in issue).

The dividend has been maintained at 2.2p for the year, although the phasing has been changed to reflect the seasonality of the business. This gives a very attractive dividend yield of 7.3%.

So why are these shares on such a low PER of just 5? Several reasons perhaps, as follows.

Firstly, the business has had several problem divisions (such as its tax practice, its loss-making Red Flag business, and some small but problematic overseas operations). Therefore the valuation probably reflects some discount for what the Chairman referred to as the "sins of the past". But the point is that these problems have now been solved, with disposals. So it's now a nice clean focussed business.

Secondly, the market perhaps aligns Begbies with problem firms of accountants like the bust Vantis, and the almost bust RSM Tenon. Both took on far too much debt, and got into problems (amazingly, as surely accountants are supposed to be experts in finance?!).

Begbies does have significant debt, but I will explain why it's not a problem. Net debt fell to £20.1m, down from £22.5m a year ago, and well down from £27.3m 6 months ago, helped by profits and a sale & leaseback of 160 company cars.

This is well within banking facilities.

So why am I relaxed about debt? It's because of the nature of the business. Insolvency practitioners always require bank financing to run the Administrations, and they are then eventually paid from asset disposals once the fees are approved at a creditor meeting (usually led by the bank).

Hence they run a large, long debtor book (8.5 months long in Begbies case, at £43.8m), which is part-funded by £20.1m in net bank debt. The two items need to be seen together, and the normal course of business.

I asked about the banking relationships, and management confirmed they are  very solid. The facilities are provided jointly by HSBC and Yorkshire Bank, and are unsecured - very important in showing how comfortable the banks are.

We were told there is no pressure to reduce the borrowings, and there is plenty of headroom.

So once you understand that the debt is simply a revolving facility to finance the long debtor book, which is normal for insolvency practitioners, then it suddenly ceases to be a problem. This message has not got across to the investment community - yet. This in my view is one factor which could trigger a re-rating, once the market learns to become more comfortable with the nature of this debt.

Thirdly, the dividend yield is now looking comfortably sustainable, hence there is scope in my view for the dividend yield to come down from 7.3% to perhaps 4-5%, which implies the shares could be around 50% higher in time. And until then, it's rather pleasant to keep receiving the dividends!

The other significant factor which could trigger a re-rating of these shares is the nature of the insolvency market. We were shown an interesting slide which charted the number of insolvencies over the last 40 years. As you would expect, this showed a spike in insolvencies both during Recessions, but also a further significant increase after Recessions (as creditors - mainly banks - push for asset disposals in a recovering economy).

But this time around things have been different. Unprecedentedly low interest rates, and political pressure, mean that insolvencies have been artificially low in this cycle. HMRC have been exceptionally lenient in allowing more time for financially distressed companies to pay, and hence this has kept alive many "zombie" companies which are essentially bust, but still operating on life support.

Clearly this will not last forever. At some point the Recession will either get worse, in which case insolvencies will rise, or the economy will begin improving and zombie companies put out of their misery by Banks cleaning up their balance sheets. But at the moment Banks don't want to make any provisions that they don't have to.

So the interesting thing is that either way Begbies should benefit. So not only are the shares cheap (in my opinion) based on current trading, but there are good reasons to expect better trading in the future whatever path the economy takes.

Begbies have nothing exciting planned - probably more small, bolt-on acquisitions (which are now reasonably priced), which is all I want them to do. It's now a focussed specialist, sticking to its knitting - ideal from an investor point of view.

There are no regulatory or legal issues on the horizon which worry management. Govt is not going to change the law on pre-packs, which was one recent issue.

So as a boring, sound business, paying a smashing dividend yield of 7.3%, with good upside for a re-rating at some point, I like these shares, like the management, and consider this a long-term hold for me.

As usual please do your own research, this is personal opinion only, and nothing here should be misconstrued as being advice, which it is not.

Thu 5 July morning report

Good morning! Here's my quick, pithy review of this morning's RNSs which interest me.


As usual, a retailer first. Absolutely stonking Q4 trading statement from discount sheds operator Dunelm (DNLM) - LFL sales up an astonishing +10.4% in Q4, and +5.2% in the second half, and +3.1% for the year. So that's an accelerating trend throughout the year.


Interestingly, they say that the inclement weather boosted sales, and just goes to show that the only weather that matters is whether you have the right stock in the right place at the right time!


They raise profit expectations to £96m for the year ended 30 June 2012, although that's possibly priced in to a £1,035m mkt cap at 512p. Trading from 115 superstores, another 10 are planned for this year. A really very impressive business, so I must visit one to see what they're doing which is working so well! The PER seems to be about 14, based on the revised profit figure, so there could be some scope for the shares to rise on this excellent performance, but not a huge amount.
Net funds have risen to £60m.


Next, insolvency accountants Begbies Traynor (BEG) - note the appropriateness of the ticker for the sector!
Adjusted EPS fell slightly from 6.4p to 6.0p, but bear in mind the shares are only 30p, so the PER looks cheap at 5.


(I should declare an interest here, as my family hold a few shares in BEG).


Noteworthy is the 1.6p final divi, giving 2.2p total for the year, a very attractive yield of around 7%.


Net debt has fallen by just over £2m to £20.1m.
Worth noting that their bank debt is unsecured, very unusual, which gives me confidence that the Bank have confidence in them.


I once worked on insolvency jobs, 20 years ago, and the nature of the work is that large debtors build up, a backlog of fees, which are then paid in a lump when the creditors meetings are held. Hence a long-dated debtor book, financed by bank borrowings, is completely normal.


I don't think the stock market has ever quite grasped that, and has instead lumped in Begbies with problem over-geared accountants like Vantis & RSM Tenon - isn't it shocking & surprising that groups of accountants are so frequently incompetent in managing their own businesses!


But all looks fine at Begbies, and on the back of these figures I'm happy to continue holding. Might see if I can attend the analyst meeting this morning at 9:30 as I happen to be in London.


They have disposed of problem divisions, and now seem focused on the core insolvency business. A nice counter-cyclical share to hold.


Cinema operator, Cineworld (CINE) announces an in-line trading statement. These shares look priced about right to me, on a PER of 11.


Stadium (SDM) announces broadly in-line (i.e. slightly below!) trading.


Progressive Digital Media Group (PRO) also announces in line trading.


I am left again thinking, recession? What recession?!


Rather odd announcement from Media Corp (MDC) about re-acquiring some websites previously disposed of. Adds to my gut feeling that this company has a slight whiff of something not quite right about it. But can't put my finger on it.


Have a good day, looks like a modestly up start, with the FTSE 100 futures up about 10.