Langton Capital – 2019-09-18 – PREMIUM – Seedrs, JDW, coffee delivery, TCG, EZH etc.:
Seedrs, JDW, coffee delivery, TCG, EZH etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think we have left behind us the days of reasoned argument and, to that extent, our politicians and the rent-a-mouth talking heads that pop up regularly on TV from these various ‘think tanks’ now have more in common with our dog than they ever had before.
Because he, the dog that is, is like the worst type of football supporter. His team, i.e. us, can do no wrong whilst if the opposition get a decision, then the referee must be blind, stupid, corrupt or all three things and, whilst this does keep things simple, it’s rather a shame.
Everything is being looked at through the lens of pre-existing opinions and the number of people who are (or at least will admit to) changing their minds is limited.
Still, we are where we are. Time to stock up on toilet rolls and Pot Noodles. On to the news:
PRIVATE COMPANY ACCOUNTS: CROWD FUNDER SEEDRS REPORTS TO DEC 2018 AS LOSSES CONTINUE: Seedrs is one of the largest crowd-funding platforms. It is disrupting the market but losses are accumulating. 18 Sept 2019:
• Seedrs was incorporated in 2009 aiming to disintermediate the market for financing small, growth companies.
• The ‘funding gap’ has been talked about for many years. Companies become too large to be funded by friends and relatives but not large enough to tap the traditional capital markets.
• If these companies are loss-making or have few tangible assets, then they may not be interesting to banks.
• Step in the crowd-funders. Peer to peer lending is a parallel market and both aim to cut out the middle man, put investors directly in touch with the companies that they are to fund.
• This is good (costs reduced etc.) but also risky as, with a bank, the depositors’ risks are spread over thousands of borrowers and in direct equity investment, there are rules and regs involved with listing.
• A few big winners (as with heavily-regulated national lotteries) have persuaded investors that the risks are worth taking.
• Many are in it for the fun (e.g. cheap beer with the crowd-funded brewers or simply bragging rights in restaurants etc.), some for the money.
• Nonetheless, whatever the risks, selling shovels to miners has always, in theory at least, been less risky than has been the mining itself.
• Seedrs points out that its ‘principal activity is to provide an online platform for investing in early stage and growth businesses.’
• The parent company is regulated by the Financial Conduct Authority.
• Revenues come in via fees paid by businesses that raise investment on the platform.
• There can also be ‘investor fees’ that ‘are contingent on the success of those businesses.’
• The majority of these fees have not been realised. They will be very illiquid. Seedrs says ‘to date the Group has realised a small portion of these investor fees; however the majority have not been realised, continue to be difficult to quantify at present, and so they have not been included as revenue.’
• The numbers ‘show a significant growth in revenue’ to £3.2m from £2.0m in 2017.
• The loss before tax is £4.3m vs a loss of £3.8m in 2017.
• Shareholders’ funds are £10.0m vs £13.7m last year and the company says ‘the Group is in its growth phase and the directors consider the results in line with their expectations and business plan.’
• Indeed, Seedrs goes on to say ‘the performance of the Group during 2018 has been very encouraging, with the platform achieving record levels of investment and fundraising activity.’
• Revenue rose by 56% whilst admin expenses rose by 28%.
Company comments on the market:
• Seedrs says ‘online investment in alternative asset classes is growing as an industry and continues to receive attention and support from the media, public and government.’
• It says ‘its commitment to developing a strong brand, an extensive customer base and a quality service will mean it remains a market leader.’
• The question, as always with J-curve companies, is ‘will the market ever be profitable enough to justify the initial investments?’
• Seedrs faces a number of risks including potential ‘regulatory change, cyber security, financial fraud, performance of the successfully funded companies and loss of reputation.’
• Many of these risks are also faced by other companies.
• The company says ‘the Group aims to grow significantly over the coming year, inreasing its revenues, improving efficiencies in its cost base and introducing new products’.
• Revenue has indeed risen by 56% and margins, though negative, have improved as admin expenses have risen at a slower rate
• The group raised £10m in new equity during FY17 but nothing in FY18. It will need to raise more at some point.
• Shareholders’ funds have fallen by the amount of the annual loss (post some adjustments) and the accumulated losses since incorporation are £15.2m.
• Accumulated losses will have increased further during FY19.
• Some £6.3m of the group’s shareholders’ funds were held in cash. Relatively little, at £407k, was deemed to be intangible. You would not expect to see debt at this stage in a company’s development
• The auditor is KPMG. It will be reappointed.
• The directors make the point re ‘going concern’ that the directors’ business plans suggest ‘the Group will have sufficient funds, by raising additional capital, to meet its liabilities as they fall due for that period. As a result, these financial statements have been prepared on a going concern basis.’
• The directors concede that ‘the required additional capital that needs to be raised however is not yet committed and whilst the Directors, having previously raised such capital in recent years, have confidence in their ability to raise additional funds, there is no certainty that it will be successful at the time that it may be required.’
• Seedrs says ‘should a future capital raise be unsuccessful, the Group may be unable to discharge its liabilities as they fall due and, as a result, these circumstances represent a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern.’
• These are realistic comments.
• KPMG says that, given the company’s losses, its ‘ability to continue as a going concern is dependent on additional capital being raised that is not yet committed. These events and conditions, along with the other matters explained in note 1.2, constitute material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.’
• Post year end, the group looks to have raised a very small amount of capital in June 2019 – this looked like options as it totalled around £6,000 at a price of £6.21 per share vs the £23.59 that had been paid in 2017.
• There were 7 directors at year end. Two individuals resigned during the year and two new members joined the board.
• A start-up business, particularly a disruptor, is likely to incur losses for several years – just look at Amazon, Deliveroo etc.
• These losses need funding. That requires either a large dollop of capital up front, or a maintenance of confidence levels and a series of capital raises over the years.
• The last major fund raises from Seedrs were in Oct and Dec 2017, at £23.59 per share. Arguably, sentiment towards small companies, crowd-funding and the like have not improved since the group last tapped the market.
• To put it simply, for a J-curve to work, there must be an upward bit as well as the much more predictable downward bit.
• If crowd-funding is at or past its peak, then Seedrs may struggle to achieve profitability.
• Its next fund raise will be very interesting. The big question will be ‘is it be possible?’ Of almost as much interest will be ‘at what price?’
• Put your hand up if you’re not here. Occasionally, our system bounces email addresses off our list. It for some reason thinks this is a good idea. We never (well, hardly ever) cut anyone on purpose. But, proving a negative is tough so, if you don’t get it for a few days & would still like to receive it, please (check your spam folder and then) drop us a line.
GENERAL NEWS – PUBS & RESTAURANTS:
• JDW yesterday bought back 125k of its own shares for cancellation at £15.08 per share. The total consideration was £1.9m.
• Research from the National Institute for Health Research has found that the lowering of the drink drive limit in Scotland has not had a significant impact on reducing road traffic accidents within the first two years.
• The Food and Drink Federation has responded to the government not extending the Brexit transition period, stating: ‘For a transition period to be useful to business, they must know the shape of the deal and the future UK-EU relationship. Even with a promised end point, 21 months would have been incredibly challenging for many businesses. A 14 month transition period falls far short of what is required to ensure the UK’s food and drink supply chain will be ready’.
• Starbucks is introducing delivery to 11 UK cities by teaming up with Uber Eats. Starbucks’ UK general manager Alex Rayner said: ‘We want to meet customers where they are, and through our partnership with Uber Eats, we have made a significant investment in technology and product innovation which means that connecting with Starbucks is just a click away’.
• Credit card interest rates have increased to their highest rate in 13 years, with the average annual percentage rate reaching 24.7%.
• Handmade Burger Co has closed its Manchester site after five years of operations.
• The sushi and yakitori restaurant group, Sticks’n’Sushi has announced it will open its Soho site next month, more than 18 months after it was first mooted.
• Brewdog Distilling Co is leading customers to a secret pop-up bar in a remote location in Scotland this week. The Lonewolf gin bar will be concealed in a ‘remote Scottish location’, according to the group.
• Diageo’s Gordon’s, the world’s best-selling gin, is celebrating its 250th anniversary.
• The Society of Independent Brewers (SIBA) appoints Barry Watts as its new Head of Public Affairs and Policy.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook has filed for Chapter 15 bankruptcy court protection in the US. Chapter per Bloomberg. Chapter 15 protects foreign companies, like Thomas Cook, from lawsuits by US creditors while they restructure in another country. Thomas Cook hopes to have its now-£1.1bn refinancing finalised by the end of the month.
• ICAMAP, which is bidding on an agreed basis for EasyHotel, has announced that it either owns or has received acceptances for some 68% of the target company’s shares. The bid will remain open until at least 1 October. Given that Easygroup is keeping its stake in the company, the number of shares not owned by the group’s two largest shareholders will be negligible.
• ICAMAP intends to delist EasyHotel if it achieves a 75% shareholding. This may not happen given EasyGroup’s shareholding. ICAMAP says ‘in the event that Bidco has not acquired easyHotel Shares carrying 75 per cent. or more of the voting rights of easyHotel following the close of the Offer on 1 October 2019, the easyHotel Shares would remain admitted to AIM but Bidco would be the majority shareholder of easyHotel. In this scenario, it is expected that the liquidity and marketability of easyHotel Shares held by minority shareholders would be limited.’
• TripAdvisor releases its first Transparency Report with the online travel site claiming it removed over one million fraudulent posts from its platform in 2018. The report follows the release of a Which? investigation earlier this month, which alleged that some of the top 10 rated hotels in popular tourist destinations around the world were pushed up the site’s rankings by fake reviews.
• NH Hotel Group pledges to cut carbon emissions by 20% by 2030 with the goal of preventing more than 70,000 tonnes of carbon dioxide from entering the atmosphere.
• The most expensive airport in the UK is Heathrow based on a comparison of airport costs such as car parking, hotel stay, lounge access, together with fast track security and passport control. The study found Newcastle offered the best value for money, with costs totalling £138.48 compared to £271.76 at Heathrow.
• The Welsh holiday park business, Barker’s Leisure Holiday Parks has bought its fourth site in Narberth, Pembrokeshire.
• Games Workshop has updated on trading saying that it ‘is in line with the Board’s expectations. Cash generation also remains strong.’
• GAW says ‘the Board has also today declared a dividend of 35 pence per share. This is in line with the Company’s policy to distribute truly surplus cash.’
• Facebook refutes suggestions that its upcoming cryptocurrency could threaten existing monies and banks as French finance minister Bruno Le Maire said Libra should be banned from operating in Europe. Libra is scheduled to launch before the middle of next year.
• The Six Nations has ‘entered into an exclusive period negotiation’ with the private equity firm CVC to sell a stake in the championship. The Six Nations commented: ‘Six Nations believes that investment in rugby football is vital for the long-term future of our game and this belief is central in our decision to enter into this period of negotiation’.
• New Zealand has been chosen as the filming location for the Netflix Lord of the Rings television series. The show is widely tipped to be the most expensive ever made, at a cost of at least $1bn.
FINANCE & ECONOMICS:
• Sterling up at $1.2485 and €1.128. Oil down at $64.53. UK 10yr gilt yield unchanged at 0.69%. World markets mixed with Far East lower in Wednesday trade.
o Supreme court still hearing arguments as to whether or not the proroguing of parliament is legal.
o British ministers said to be considering making Northern Ireland a ‘special economic zone’ that would see it effectively remain in the EU in all but name post Brexit.
START THE DAY WITH A SONG:
Yesterday’s song was Rehab by Amy Winehouse. Today who sang:
Twenty-nine different attributes,
Only seven that you like
Twenty ways to see the world (oh-ho)
Twenty ways to start a fight (oh-ho)
RETAIL WITH NICK BUBB:
• Kingfisher: Today’s interims from the struggling Kingfisher are the last to be presided over by the lame duck CEO Veronique Laury (her successor Thierry Garnier starts as CEO on 25 September) and the change cannot come soon enough, given the mess the business is in. Despite the efforts to “optimise the implementation of key transformation enablers”, the much-vaunted transformation programme is still causing sales disruption and although, curiously, Kingfisher do not spell out the Q2 sales outcome, we can reveal that the -1.8% dip in overall first half LFL sales compares with a +0.8% LFL outcome in Q1, so Q2 has been very poor in both B&Q in the UK and Castorama in France (ie both the two main businesses). Despite improved gross margins, Retail profit in H1 is down 4.4% in constant currency, largely driven by France, but adjusted pre-tax profit is up 3.7%, reflecting lower
• Grocery Market Share Watch: The latest Nielsen grocery sales figures (for the 4 weeks to Sept 7th) showed that overall supermarket industry sales picked up to +2.2%, given the end of month heatwave. However, the rival Kantar survey reported a slightly worse outcome of +1.6% for a similar 4 week period (to Sept 8th), on a “Till Roll” basis, despite the 1.0% food price inflation rate. However, on a pure “Grocery” basis (ex-Non Food) overall sales were only 1.2% up, according to Kantar, despite Aldi/Lidl growth of 8.1% combined. Sainsbury was the best of the “Big 4” on this basis, with gross sales 0.7% up, whilst Asda was flat, Tesco was down by 0.5% gross and Morrisons was down by 1.7% gross, but M&S Food was up by 2.3% gross.
• Waitrose Watch: Disappointingly, yesterday morning’s JLP weekly overview, for w/e Sept 14th, revealed that Waitrose saw another dip of 1.0% in gross ex-petrol sales last week, despite a soft comp, continuing the weak start to Q3/H2…That left the last 33 weeks still down by 0.7% gross cumulatively, albeit store space is fractionally down (after the sale of five Waitrose stores in June), meaning that the LFL sales dip was only 0.4% in H1.
• John Lewis Trading Watch: The warm weather didn’t help John Lewis last week, but it was still a bit of a shock to see that overall gross sales were well down again, by 6.1% in w/e Sept 14th, despite a weak comp…In terms of sales mix, Home sales were down by 10.7% gross, Fashion/Beauty sales were down by 7.6% and Electricals were down by 1.2% gross. There is only the new Cheltenham store in the figures, but overall John Lewis LFL sales, however, are down by c2.5% over the last 33 weeks (as gross sales are now running down 2.0%).
• News Flow This Week: Tomorrow brings the much-awaited Next interims and the ONS Retail Sales figures for August, with the Applegreen interims following on Friday.