September 2020 Portfolio Update

This month has been incredibly busy with numerous company announcements every day. It's been quite the blizzard with a wide gulf between the pandemic winners and losers becoming ever more apparent. As a side effect I've managed to attend over ten virtual meetings through Investor Meet Company, piworld and directly with companies. There are far more chances to meet management than ever before and this is a huge spin-off benefit from the lockdown for investors. Next month is looking much quieter on all fronts but I'm optimistic that some interesting meetings will turn up.

On a similar topic I enjoyed watching this interview with Richard Crow where he talks about his investment strategy and thoughts about various companies. His current approach is very different to mine in that he doesn't screen on fundamentals but instead screens on the shape of the chart and whether a "bowl" shape is visible. If this in place then he uses recent news flow (such as a change of board, director buying and trading not getting worse) to decide whether a significant change in fortune is underway. It's a very simple set of rules and I must admit that I find this style attractive - which is why I've joined his private chat room. If you'd like to know more this other interview is well worth a read.

As for my portfolio it's been a pretty equal split between the blues and reds this month with all of this activity leading to no change in portfolio value from August (leaving me at 11.8% YTD). I suppose that this result is a bit disappointing but on the other hand I've managed to absorb the fact that my largest holding GAN has dropped 14%. With no news catalyst I believe that this drawdown is down to over-excited investors from the IPO selling out and moving onto the next hot stock. I think that they're crazy given the growth runway in front of GAN but everyone has a different strategy. On the upside my other US stock, Spectra Systems, has bounced back from recent weakness while Boohoo has recovered from its recent shorting attack with excellent trading news. Hopefully news flow will continue to be positive in Q4 and we'll get a bounce as Brexit heads to a close.

Risers: SPSY 31%, BOO 30%, AFX 19%, CCC 17%, TPFG 16%, BOTB 14%, FRAN 13%, SPR 10%, BUR 10%, PLUS 8%, SLP 7%, III 6%, VLX 4%, GAMA 4%, SDI 4%, TM17 1%

Fallers: SONC -1%, TSTL -2%, LIO -2%, FDM -2%, BLV -4%, HAT -5%, CMCL -5%, CDM -7%, RWS -7%, IGR -7%, SDL -7%, CRW -10%, MGP -11%, LOOP -11%, K3C -12%, TAM -13%, SCT -13%, GAN -14%, DRV -16%

Purchases

ScS Group Bought at 169p - September 20

I managed to pick up some ScS earlier this month on the back of a positive trading update and favourable comments made by friends in the industry. I'm not particularly keen on retailers at the moment but it seems that certain sectors, such as furnishings and DIY, are going well precisely because people are stuck at home. Hence post-lockdown trading has been very strong with like-for-like growth of 51% for the six weeks heading into September. This performance has significantly exceeded board expectations and they sound pretty encouraged by how things are going. The FY results will be released at the end of September and I'm sure that the numbers for 2020 will be diabolical. Which won't matter a jot - what's important is whether 2021 can bounce back to the levels of 2018/19 and perhaps even exceed them.

Best of the Best Bought at 1740p - September 20

I'm a recent convert to the attractions of BOTB having heard Paul Scott, and others, bang on about it for years. What's clear to see is that their transition from airport spiv operator to slick on-line gaming platform is both complete and wildly successful. They've no doubt received a boost from the lockdown but the board have put the company in a position to benefit and full marks to them. The catalyst for picking up a few more shares was their AGM statement that trading to date has been stronger than expected. As a result both sales and profits are expected to be ahead of prior management expectations. This is fabulous news and, as far as I can tell, analyst forecasts are yet to include this new information. As such I'm currently expecting BOTB to at least double their earnings from last year, taking them to an EPS of 75p or more, compared to the current estimate of 69.8p. This puts the shares on a P/E ratio of ~23 which is absurd for a triple-digit growth rate.

Boohoo Group Bought at 372p - September 20

The publication of the independent review, on supplier issues within Leicester, last week precipitated a steep rise in Boohoo's share price this week. The appearance of the report was very timely as Boohoo put out its interim results today. A quick look this morning told me that the group traded incredibly strongly during H1 with growth on all fronts. This is the best possible response to recent short-seller attacks and confirms my belief in the strength of the group. That said the board are moderately cautious about the second-half of the year which makes sense considering the economic headwinds that exist globally. Still I think that the Boohoo model is so well proven, and profitable, that it would be foolish to bet against continuing momentum as customers line up to buy their "fast fashion" offering. In this light I was happy to take advantage of the struggle between bulls and bears today as the share price closed 4% down and failed to break out above the 400p level. Personally I believe that Boohoo has turned itself into a truly global brand and has an outstanding growth runway ahead. This makes it an excellent candidate for becoming a long-term holding.

Sales

Avacta Sold at 163p - September 20 - 35.8% gain

I decided to sell out of my Avacta holding, picked up in the placing, for a couple of reasons. One of these was that I needed the money elsewhere. More importantly though it's important to remember that Avacta continues to be a loss making company with minimal (<£5m) revenues that dilutes shareholders on a regular basis. The reason that it's popular with private investors is that it has a great story, with real IP, and the potential to generate a lot of sales if just one of its developments becomes commercially viable. Unfortunately this combination drives an awful lot of hope into the share price (enough to make it a 10-bagger this year, in theory) along with plenty of volatility. My take on this is that Avacta is more a punt than an investment at the moment which means that it's sensible to take a profit when one is available. If Avacta actually strikes gold then there will be plenty of time to buy back in, even if the share price jumps 50%, as the potential reward from a licensed Covid-19 test is so gigantic.

Announcements

Computacenter

A very short update but it's become clear to the board that FY trading will be materially above previous expectations. This is quite something given that the company is just a few months into H2. Bodes well for the future. (Update)

Alpha FX

It's been a difficult six months for Alpha FX with their largest client defaulting at the height of the Covid-19 crisis. A sense of this comes from the fact that while sales rose 16% to £18m underlying EPS fell more than 30% from 14.0p to 9.5p (but only fell 11% if you exclude non-cash adjustments related to the default payment plan). On the other hand FX volume comes from clients actually being able to trade and for a good part of H1 this activity was substantially reduced by the lockdown. So I believe that the board have done a good job of steering the company through the crisis. The big question is whether they can bounce back to the double-digit growth rates seen in previous years. On this front there is room for optimism with group performance returning to Q1 levels and recent investments (in Canada and with Alpha Payment Solutions) achieving record revenues. In fact it's these new ventures which have partially held back profitability since Alpha FX is covering staff costs in these areas now in order to reap profits at a later date. In addition the company paid full salaries and commissions throughout the pandemic with the only change being a slight pull-back in hiring. So I'm inclined to see H1 as an unavoidable blip for the company with undiminished potential for growth on many fronts. In fact it's plausible that they could beat the current much reduced forecasts (down 28% from pre-Covid expectations) which might bring them in-line with the 2019 result. That would be pretty good. (Results)

Belvoir Group

There's a remarkable story of success here with this property letting and sales group. At the beginning of lockdown the board took a realistic, but pessimistic, view of potential outcomes which triggered a 29% fall in analyst expectations for the year. However a couple of factors, one internal and one external, have allowed the group to trade successfully enough to bring these forecasts right back up again. On the self-help front the head office fully supported franchisees during the lockdown and in return these business owners worked hard to generate sales where possible and prepare for the future. At the same time the Government eased restrictions on the property market earlier than expected and juiced the market by cutting the stamp duty payable on house purchases. As a result revenue rose 8% in H1 (with 2% organic growth) and bottom-line earnings rose 16% to 7.3p which is in-line with pre-Covid expectations. A very impressive result that's allowing the company to pay an interim dividend and a partial catch-up of the suspended final dividend. In retrospect a key driver here is that the lettings business (62% of gross profit) is both recurring and reliable as renters want to keep a roof over their head. This area is likely to remain a growth factor as the letting market consolidates and regulation pushes private landlords towards paying someone else to manage their properties. On top of this financial services revenue is growing strongly with plenty of runway to expand headcount. An excellent business that isn't highly rated. (Results)

Spectra Systems

Given that these interim results straddle the peak of the Covid-19 pandemic it's impressive that sales/profits are the same as in 2019. One of the reasons for this is that Spectra enter into long-term contracts with customers and benefits from reasonably stable revenues. At the same time the company is active on a number of R&D fronts in the areas of banknote printing, product authentication and banknote decontamination. This supports their claim to be technology leaders who can deal with difficult technical requirements. In addition the board are currently evaluating the IP of another company with patents applicable to biotech assays, point of care testing and metrology. This could provide another related but separate line of business for this research driven business. Remarkably discussions with central banks support a belief that worldwide demand for banknotes will be higher in 2020 than in 2019. I find this astonishing but, if true, this will boost H2 earnings. As a result of this, and other positive attention from customers, the board expect both sales and profits to significantly exceed market expectation for the full year. This is a heck of a statement and analysts have responded by lifting their 2020 and 2021 estimates by 16%. This puts the shares on a forward P/E of 18-19 which is undemanding for high EPS growth, operating margins of 30%+ and a ROCE rising above 15%. I don't want to get over-excited here but Spectra could be on the cusp of transformational growth! (Results)

Sylvania Platinum

This was a remarkable year for Sylvania with buoyant metal prices (particularly rhodium which increased 165%) vying with the lockdown in South Africa and a depressed chromium market. In the end a 58% increase in the average gross basket price to $2015/oz (from $1277/oz) landed a knockout blow. As a result revenue rose 62% to $114m and net profit jumped 125% to $41m despite a 4% drop (~3000 ounces) in production. The small size of this fall is all the more remarkable given that circa 10,000 ounces of production were lost during the lockdown. Looking forward the company expects to maintain production at the 70,000 ounce level which is a solid result given the challenges facing Sylvania. A big problem is that underground mining has been cut back at the host mine which reduces volumes being fed to Sylvania. As a result operations are substituting other sources such as historic dump material. This is a perfectly acceptable source for processing but the company needs to re-calibrate in order to deal with the changing chemistry most efficiently. In addition water constraints and power shortages continue to hamper operations and inject inefficiency. The board are active in mitigating the impact of these factors but they remain a drag on throughput. More positively the group is debt free and can fund various expansion and optimisation projects with a number of these due to complete in 2021 and 2022. In addition the board have appointed a new CEO and CFO which looks to have injected new energy and focus into the group while retaining a focus on cautious expansion and shareholder returns (both appointees have worked at Sylvania for many years). This investment is not without risk but a staggeringly low P/E of 3-4 discounts an awful lot of trouble and I believe that Sylvania is materially underrated. (Results)

The Property Franchise Group

This is yet another set of results spanning the lockdown and TPFG have managed to navigate the pandemic adeptly (if not quite as profitably as Belvoir). After a strong start to the year the group reported stable sales and profits for H1 with strong cash generation taking net cash to £6.1m. An important factor here is that lettings accounted for 73% of MSF (Management Service Fees) and these provide sticky, recurring revenues. Since the period end sales and lettings have really boomed in July (double-digit increases) with EweMove recording very high levels of activity. This resonates with the narrative that the Government have successfully primed the property market by reducing stamp duty and easing lockdown restrictions early. On this front EweMove franchisees were able restart very quickly and take instructions ahead of other estate agents which demonstrates the strengths of a model where operatives are incentivised to act like business owners. Unsurprisingly the head office is looking to capitalise on this momentum by adding new territories and materially increasing the number of financial service advisers serving the network. Acquisitions are also a possibility and TPFG support franchisees looking to take on lettings books. Frankly I see a lot of growth in the pipeline and while the board have re-affirmed their pre-Covid expectations for the year I suspect that there's upside available in the second half. (Results)

Gamma Communications

Gamma has been a rock-solid constituent member of my portfolio for a number of years now and the attractions are obvious. In each of the last five years the company has achieved double-digit EPS growth with a 29% CAGR. These earnings have consistently converted to cash enabling the company to acquire and prosper without the use of leverage or share issuance. Over this period the ROCE has sat at the 25% level, which is excellent, while margins have steadily improved. This trend is set to continue with Gamma trading very well through the lockdown and generating a 22% rise in earnings off the back of a 12% increase in sales. The majority of these sales emerged from the UK Indirect business, with a focus on existing partners, but the overseas business is expanding quickly and the board are focused on widening their footprint in Europe. Apparently the adoption of cloud services by businesses is low on the Continent and Gamma are specifically targeting the Dutch, Spanish and German markets. Given their continued success in the UK I'm happy to back management in this venture. At the same time, by a stroke of luck, the company acquired a specialist in Microsoft Teams back in February and, for obvious reasons, this part of the business has performed very well. Still fortune favours the brave. Looking forwards the company very usefully includes the range of sales (£369.0m-£394.3m) and EPS (43.5p-49.9p) that they forecast and anticipate coming in at the top end. Personally I expect them to trade more strongly than this over the next quarter with a positive trading update in due course. (Results)

Computacenter

This is a nice set of HY numbers with adjusted EPS up 35% on essentially flat sales compared to 2019. This suggests a healthy improvement in margin along with a reduction in costs. In fact these effects are explicitly mentioned in the narrative with falling sales to industrial customers being offset by new business in the government and financial services sector. Operationally then the business has dealt with Covid-19 effectively despite a wide variation in the strength of end markets (with the UK and Germany trading well while France and the USA struggled). As a result the board are confident enough to state that adjusted PBT for the year is unlikely to be less than £180m - which encouraged analysts to raise their forecasts by 22.5% from 94.2p to 113p. It's this sort of acceleration in estimates that gets me really excited about any company since the share price is always playing catch-up and there's the chance that a P/E re-rating could start to kick in. With Computacenter the shares are up 16% following the results and the P/E is decent but not outrageous at ~20. A point worth noting in these results is that employees have been utilised more effectively with time previously spent travelling now available to deal with customer issues. I've seen this effect mentioned elsewhere and I suspect that, at least partially, this efficiency boost is here to stay. Looking forwards Computacenter won't see the WFH boost repeated, which is reflected in the flat EPS forecasts for 2021 and 2022, but the company has barely put a foot wrong in years and this crisis has demonstrated their resilience and flexibility to customers. I'm content with this outcome. (Results)

Team17

As revealed in earlier updates Team17 has benefitted significantly from the Covid-19 lockdown as people were left with time on their hands. The result is that revenues in H1 grew 28% to £38.8m (a record), adjusted EPS improved 22% to 8.9p and operating cash conversion reached a remarkable 114% (leaving the company with net cash of £50.4m). While the board expect trading to normalise in H2, which is why FY estimates are less than double the H1 numbers, they still expect revenue and adjusted EBITDA to be ahead of market expectations. On the other hand the H2 weighting to new releases could easily offset any Covid related slowdown. It's progress like this that has allowed analysts to hike their 2020 and 2021 estimates by ~70% in the last eighteen months and I don't believe that we're anywhere near the end of this growth cycle. Backing this up is the fact that a number of successful titles are due for release in H2, in-line with the arrival of next generation gaming consoles, together with ten additional games signed for release in future years. It's remarkable to note that Debbie Bestwick founded Team17 30 years ago and, as the largest shareholder with 22% of the company, I see no evidence that she's looking to take a back-seat. In fact it appears that she listed Team17 in order to drive growth, both organically and by acquisition, as the public listing facilitates any future fund raising (although internally generated cash-flow is high and may remove the need for any dilution). Looking at the accounts the only thing that concerns me is that £3.8m of development costs were capitalised in H1 (double that of previous periods) although I can understand the accounting practice. At least amortisation of this cost isn't excluded from the adjusted EBITDA figure so the company isn't trying to have its cake and eat it. All in all I see an excellent runway for growth ahead with a strong tailwind from trends in the gaming industry as a whole. (Results)

Medica Group

It's been a tough H1 for Medica with operational gearing acting in reverse. Sales fell a resilient 23% but fixed costs lower down triggered a 62% fall in operating profits as the margin more than halved from 24.3% to 11.9%. Then, right at the bottom line, EPS plunged 79% to a mere 0.74 pence (which is less than the maintained interim dividend of 0.85p). On the upside the reason for the dividend payment is that cash collection remained strong with net cash up 82% to £7.7m. This will reduce in H2 as increasing sales pull more cash into working capital, and capex spend increases, but the balance sheet here is strong. Another bright note is that NightHawk revenue (the out of hours, higher margin service) was flat year-on-year while elective sales halved. Since most of the elective procedures will still have to take place, possibly in a compressed time span, it's plausible that a chunk of Medica's revenue has been deferred rather than lost altogether. The board don't say this but they have been recruiting which gives them significant latent capacity to meet the recovery in demand. Talking about the board there has been a wholesale refresh in recent years with a new CEO, CFO and Clinical Director. I suspect that the previous directors took their eye off the ball, after getting the company listed, which is why growth fell back post-listing. Now there is a new strategy in place and I expect this to produce results, despite an increasingly competitive environment, although perhaps more in the medium-term than in the short-term. (Results)

Best of the Best

An excellent AGM update with both revenue and profits for the full year to be ahead of previous management expectations. The key to this appears to be the launch of a midweek contest along with additional marketing spend. I've seen a number of Best of the Best adverts on TV, which is new, which suggests that they're working hard to acquire customers. It would be interesting to know how sticky these clients are, to get some idea of the effectiveness of the marketing effort, but that kind of information is only included in the annual report (if at all). Either way trading in the first four months has been strong and the board expect this momentum to continue. (Update)

Plus500

Another company benefitting from the lockdown is Plus500 with continued market volatility driving high levels of client activity. Here, as well, marketing efforts have continued apace with this leading to the onboarding of a high level of new customers. As a result platform usage remains at elevated levels and I very much doubt that this will change while the markets remain in such turmoil. In fact I can see volatility persisting for at least another six months as we pass through Brexit and the US election. Sadly this isn't another outperforming update but the board do state that they are very confident about the outlook. I can well believe this and I expect the Q3 update in late October to raise expectations for the FY. If this happens then will Plus500 remain valued on a P/E of 5-10 with a yield above 5% as most of the profits are returned to shareholders? Too cheap surely? (Update)

Craneware

With Craneware selling into the US healthcare market, which has been preoccupied with more than just software in 2020, it's notable the company matched its sales for 2019 and improved EPS by 3-12% depending on which adjustments you include. The reason for this stability is that Craneware sells contracts that generate recurring revenues and are generally sticky for clients (since it's painful changing a software platform). On this front 90% of sales were made to existing customers, or new hospitals within existing customers, which suggests that customer satisfaction is high while non-customers have a lot of inertia when it comes to selling them a new billing system. So there's both risk and opportunity there. Still it should be remembered that the story here is one of long-term growth as US hospitals transition to a value-based care system where services are tracked, monitored and analysed in increasing detail. From this perspective the difficult trading seen in 2019 and 2020, with some self-inflicted wounds, should be a short-term blip rather than an indication that the market has moved on. In fact during 2021 all core Craneware products should have been migrated on to their Trisus cloud-based platform which will allow for a richer set of features (as twenty years of data prove their unique value). This may well provide the motivation for customers to move from their current on-premise solution. In the meantime cash generation remains strong with an ambition to convert 100% of earnings into cash. Unfortunately deferred payment plans and terms meant that the target wasn't reached this year but still Craneware have $45m of cash and an unchanging share count so they're doing something right. This probably won't make much difference to the share price in the short-term but the company should regain its mojo over the next couple of years. (Results)

IG Design Group

I like how IG Design has performed in recent years but forecasts pointing to a 44% drop in profits for 2021 (at 15c compared to 30c in 2019) are painful reading. This AGM statement confirms that the business is on track to meet these forecasts after a strong start to the period. Personally I'd expect a strong start to provide more of a boost, given how analyst sentiment appears to be in the toilet, but no such luck. Still the directors remain optimistic and we'll learn more with the HY update in mid-October. It could take a while for this star to regain its former glory unfortunately. (Update)

K3 Capital

Solid FY results from K3 Capital here considering that they include at least two months of lockdown. Sales rose 10% to £15m with some weakness in KBS Corporate offset by KBS Corporate Finance rising 263% to £2.9m. At the bottom line EPS rose an impressive 31% to 12.37p due to efficiency gains and cost cutting. It should be remembered that 2019 was a very poor year, with profit falling back by a third, and that 2018 was an outstanding year which produced earnings of 14.1p. So this is a decent outcome with a reminder that corporate finance and company sales is a volatile, cyclical sector. In fact without Covid-19 this would have been a record year given the likely rise in transaction fees. To address this variability the board have been on an acquisition spree recently diversifying into the related areas of R&D tax credits, restructuring and insolvency. These purchases have been immediately earnings enhancing and already cross-selling benefits have emerged as referrals take place between separate parts of the group. From listening to the recent investor call I sense that the board are very excited by the chance to apply their database of prospects to these new brands. Up until now both randd and Quantuma grew through referrals and professional networks which, it seems, held back growth. So I believe that the group has been strengthened by these acquisitions and that the market hasn't woken up to this potential (with the share price flat-lining at 150p). I can understand this reticence with Brexit looming and a weird update to the 2021 forecast on Stockopedia doesn't help (since it suggests a 48% drop in EPS to 6.7p). This number is clearly nonsense as the board have just confirmed that they are trading in-line with the earlier forecast of 11.4p. This figure is still shown on SharePad with additional estimates of 16.0p and 20.8p for 2022 and 2023. A lot will change by then but 20p of earnings would put the shares on a P/E of 7.5. That's attractive. (Results)

LoopUp Group

Wow. What a set of numbers. After many years of on and off growth this time LoopUp has hit it out of the park with sales up 43% to £31.9m, adjusted operating profit up 664% to £9.2m and EPS up a staggering 1164% to 13.9p. Absolutely incredible and definitely not to be repeated after the nationwide lockdown drove customers into LoopUp's arms. Nevertheless with a 2020 EPS forecast of just 16.4p it's absolutely certain that the FY results will materially beat this forecast. The bigger question is whether the board can build upon this success by retaining their new customers, leveraging recent exposure to potential customers and providing services that'll remain in demand when businesses finally return to normality. Looking at the results I suspect that this year will mark a turning point for LoopUp for three reasons. Firstly, LoopUp has won numerous customers across the legal, corporate finance, investment banking and consulting sectors with a top-5 law firm signing a new contract. Secondly, sales visibility is materially improving as customers migrate to committed term contracts, with an average duration of 2 years, and this momentum continues. Finally, the recently launched integration with Microsoft Teams will allow LoopUp to leverage the success of this platform and could be a game changer. Any one of these reasons makes the shares an attractive proposition but together the sky is the limit. Realistically there's no point getting too excited as the company has disappointed before but still the current setup is about as good as it can get for LoopUp. So far they've capitalised on the opportunity by scaling up, and avoiding any core platform downtime that would frustrate paying customers, but the future remains to be written. I await it with interest. (Results)

SDI Group

A pretty short update noting that the group has made a very good start to the year. This is slightly better than last year where they made just a good start! So it's no surprise that the board are comfortable that trading is in-line with expectations which are for 3.7p of earnings. This represents a decent improvement over 2020 although up until July analysts were pencilling in an EPS of 4.3p so that downgrade is worth bearing in mind. The reason for this change is probably a reflection of foreign sales remaining tricky while travel restrictions remain in place. The company has done well to replace these lost sales, as well as those in the subdued aerospace and industrial chiller sectors, but they really need to have all business lines growing. Definitely worth holding through the current turbulence though given the competence and flexibility of the board in managing the group. (Update)

ScS Group

As anticipated these are pretty awful results with a significant impact from the pandemic. With stores closed for around two months the 19.5% fall in sales, and 20.2% drop in gross profits, feels about right. Unfortunately operational leverage in reverse, due to a low margin and fixed cost model, slaughtered profits and left the group at not much above break-even. Still cash generation was strong, probably a result of working capital unwinding, and cash on the balance sheet is up from £57m to £82m. Yes looking a bit deeper customer deposit balances have increased by £19.9m and the cash position benefited by £6.1m due to the deferment of NI and VAT payments and by £4.3m from rent deferrals. Still there's no chance of the group going bust although with IFRS16 labelling leaseholds as debt the accounts do have to show a net debt position (which I don't agree with). More significantly for shareholders the rebound in trading post-lockdown has been immense with order intake up 45.8% like-for-like in the first 9 weeks of the new year. I'm sure that this is an unsustainable reaction to people being stuck at home but still the board are seeing trading above their expectations. This optimism for 2021 has been enough to bring analyst expectations almost back to the pre-Covid level of 24p, from a barely believe low of 1p in the summer, with a recent update to 22.2p. Absent another national lockdown I expect this momentum to continue as sales from 2020 have been shifted into the current year. Uncertainty remains, of course, especially over the key Christmas period but that's what makes investment interesting. (Results)

Springfield Properties

The attraction of Springfield for me is that it's a conservatively run Scottish housebuilder which is on dirt-cheap P/E of 5-6 despite five years of double-digit earnings growth. Something doesn't quite stack up here and I believe that part of the problem is that it's illiquid and off the radar of most investors. A related issue is that the broker forecasts are pretty useless for Springfield. This is illustrated by the fact that they made 8.3p for the (admittedly difficult) year, as opposed to the forecast of 15.3p, and yet the shares rose by over 10% on the day. Why is this? One key factor is that sales in Scotland are legally contracted which means that delayed sales for April/May 2020 will now show up in the 2021 results. That's a clear boost. Add on a significant increase in demand post-lockdown, as people are looking for family homes with outdoor space, and there's a decent chance that 2021 will be an excellent year for Springfield. A further angle to consider is that Springfield have partnered with Sigma PRS Management to construct homes that Sigma can rent out based on a fixed-price design and build contract. This sounds like a valuable initiative and adds to my sense that the board are alert to the risks and opportunities that they face (which they should given the level of director shareholdings). With luck trading will remain strong and the shares will get re-rated to a sensible level for a housebuilder - or the company will get taken over. For the time being I'm happy with these results. (Results)

Boohoo Group

These are some remarkable results which cover all of the lockdown period so far. We already knew that trading had been strong, with the group pivoting away from party clothes towards the comfort market, but to lift sales by 45% and have this as the least impressive number is quite something. Moving away from the top line the gross margin moved a little higher to 55% while the operating margin improved 60bps to 9.7% - with these leading to a 51% increase in PBT. Now it's possible that growth in H2 will tail off, and the board continue to plan for reduced consumer spending, but September has started strongly and growth so far has been across all geographies and brands. In addition the group has recently added the Oasis and Warehouse brands and they have a decent chance of adding other well known names as the High Street carnage continues. This seems like a smart way to add sales without cannibalising existing markets. A key change here was the late-May purchase of the outstanding 34% of PLT which the group did not own (and where much of the sales growth seemed to be occurring). While the price paid seemed high the board believes that owning all of the PLT sales will be significantly earnings enhancing. I can well believe this to be true and this is one good reason for H2 earnings being greater than those in H1. There's also the fact that new brands take Boohoo into the premium and older customer markets which further expands the size of the potential customer base. With management making new brands more trendy, and reducing price points, it's hard to see what can derail the test and repeat strategy that has worked so well. (Results)

Disclaimer: the author holds, or used to hold, all of the shares discussed here

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