Pick that Fossil (FOSL US), an interesting value stock

The story: Fossil watches came under the radar more than a year ago, after reading about them on a post at Value and Opportunity, one of the blogs that I admire. Since then, the stock is down more than 60% as Fossil is in the middle of two transitions:
a) tries to accelerate the shift from mechanical watches to smartwatches (acquired the Misfit activity trackers/smartwatches and cross-fertilised their technology developing an interesting wristwatch collection)
b) tries to increase online sales while closing shops in department stores
Though Fossil doesn’t have enough time left, as debt could become an issue if the turnaround doesn’t bear fruit in the next two years.
I think today the stock offers an attractive risk-reward balance. If the transformation programme works out, then the stock could become a double or triple bagger. Of course, there is the downside that competition accelerates eating out their small market share. In that case, Fossil could become the next Motorola or Nokia. I want to believe the founder, Mr Kartsotis (owns around 15%) wouldn’t let his poster child go bankrupt.

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Sirius Minerals ($SXX), digging deeper into the myth

Is the recent dip in stock price an opportunity to buy?

3 interesting facts that every investor should take into account.

A)The external auditor warns the company might go bankrupt because Sirius is running out of cash. PricewaterhouseCoopers reports: “The Group is involved in efforts to secure short and long-term finance for its polyhalite project in North Yorkshire, the outcome of which is uncertain.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.”  (going concern means “open for business”)  Read more

BT Group (BT/A LN): hello from the other side..

btI think BT can offer good value in this low yield environment, awarding patient shareholders with a 3.4% dividend. Recent broker research, shows the Openereach spin off remains an uncertainty but is less likely, given the technical difficulty in deviding pension liability and assets between BT ‘core’ and Openreach. I can imagine there would be many employees with careers in both divisions, that could pose an obstacle in allocating pension contributions and liabilities between BT and Openreach. Some interesting equity research reports from respectable sources (available here for your eyes only ) show: a) dividend remains well-covered, b) BT defends well its own market share, c) no immediate threat from Ofcom.

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The bear case for Hanesbrands (HBI US)

Hanesbrands makes underwear and the alike (shocks, fleeces, sweats, thermals) under the brands: Champion, Hanes, Maidenform, Playtex, L’eggs and Just My Size.
Most of the brands it controls came after acquisitions and to fund them it has raised USD 3.3b in debt (quite high at x3 current EBITDA).

The bull case is that underwear / innerwear have little fashion risk and Hanesbrands has a big market share in the US (management says 4 in 5 Americans purchased something from them)

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U & I Group (UAI LN), London property at a discount


U & I Group, previously called Development Securities, is a property developer, focused in London and the South East. Caught my eye because currently trades at a discount to book value (P/BV x0.64) and offers a decent yield (3.1% currently, analysts expect it to double) and at a reasonable P/E x12. The stock price is -20% year to date, surely uncertainty around Brexit hasn’t helped.

One of the  U&I developments

399 Edgware Rd portfolio

U & I operates under three segments: property development and trading properties (valued at GBP 180m and GBP 80m respectively), an investment portfolio (could be valued at least 200m) and investments in various JVs, booked at GBP 90m


Property development: management targets ROE between x2-x5 times initial equity investment, with a maximum investment size of GBP 15m. How they achieve this spectacular ROE? They focus on an attractive niche: project developments worth between GBP 50m and GBP 100m. These projects are too big for individual property entrepreneurs and too small for many of the property companies.

U & I has a conservative policy valuing property investments at cost until completion. Subsequently, much of the profits from these investments haven’t hit the P&L and remain ‘dormant’ on balance sheet. Management expects GBP 55M of property gains in the fiscal year ending February 2016, GBP 23m of which are already recognised in first half. Management expects an additional GBP 115m over the next two years, which is about half current market cap.

U&I collaborates closely with local councils in building regeneration projects. This segment was strengthened in 2014 after the acquisition of “Cathedral” at just above the net asset value. In regeneration projects, the land element is typically contributed by the local council, offering higher return on equity to U & I.

The investment portfolio has a net rental yield of about 7%, these asset spread across the country with occupancy of 95% or above and occupiers like Waitrose and Matalan.  
Management uses the rental income from investment portfolio to fund the property development segment.

Management’s incentive plan is based on NAV per share growth, full payout targets 12% growth p.a for the next 4 years. I think the bar could be set a little higher. Nonetheless, the Deputy CEO owns 2% of the shares.
Net Debt comes quite high at GBP 215m but loan to value is 45% and average interest rate 6% which could move to less than 5% as projects mature.


Hostelworld (HSW LN) stock price seems over-sold

Hostelworld (HSW LN), cheap and cheerful 



Summer is here and most of us think about holiday. I will never forget the great time I had in hostels, those days balance between cost and convenience was tilted towards cost. One interesting stock that taps into the growing demand for travel among millennials is Hostelworld. IPOed recently, floated on a 5 start valuation but ended up 53% lower as market was expecting growth but bookings entered a soft-patch in Europe, after the recent events in Paris/Belgium. I think there could be some hidden value at current price. 


Business: Hostel booking service, market leader in hostels, followed by booking.com. Technology is developed in-house (both app and web-platform). Their business model is quite straightforward, customer searches and books accommodation through the app, Hostelworld collects a deposit, customer pays the balance at the hostel upon arrival. Employes 256 people across Dublin, London, Shanghai and Syndey.

22% owned by Woodford’s Patient Capital.


HostelWorld’s recent campaign: In Da Hostel with 50 cent, costs almost 50 cents of every 1 euro collected in Revenue.


FY15 Results: bookings grew 1% to 7.1m, Net Revenue Eur 83.5m  +5%yoy,
EBITDA 23.6m. Profit after tax: Eur 21m v 25.6m yoy impacted by higher marketing ‘investment’. Marketing expense is the single biggest expense item, came at Eur37.4m (+29%) or 44.7% of revenue, which means for Euro 1 HSW collects, 45c go to marketing

G&A came at 64m as marketing increased Eur +8.5m

Net Cash of 13.6m

Capitalised R&D: 4.3m v 1.4m yoy staff costs (not so good)

Divi: recommended 2.75c, policy payout 70-80% of profit after tax

Brand positioning:

Integrated Hostel Bookers and Hostel World brands, with Primary focus on Hostelworld.

Hostelwold contributes 3/4 of bookings and reported 17% growth

Mobile: 41% of bookings were though the mobile app, 59% via desktop

Geography: UK is only 12%, rest of Europe 34%, US 24%

Target Age: 78% between 18 – 30 yrs olds

Generates Eur 22.6 per booking on average


Market Cap GBP 148m, EV/EBITDA x7.1, Divi 1.4%, P/E 8.7

Assuming net income falls 8%, in line with consensus and comes at Eur 19.3m

then HSW trades at forward P/E x9 and a potential dividend yield of at least 7%

Most recent guidance: AGM statement 26 May:

– trading in Q2 has been below management’s expectations, due to softer demand in EU

– average booking value has been lower

– marketing expenditure will be below the previous guidance of 45% – 50% of revenue

-It’s all about the Summer:  ‘the year’s outturn will be depended on the recovery in key European destinations over the important summer travel season’


App Annie statistics show downloads across key countries remain stable, the 8% revenue decline projected by consensus seems fully priced in.



Key risks:

Goodwill and Intangibles reported on Dec 15 with a carrying value of Eur 159m, representing 88% of total assets. Most of these non-tangible assets relate to domain names (Eur 136.8m). Management has fully written down the goodwill from hostelbookers acquisitions. Total impairments came at Eur 50.6m (or five year’s worth of amortization)

you can see but can’t touch..


Insiders started buying


Comparing rental hire stocks, Lavendon (LVD LN) offers value

One of my favorite blogs is Value and Opportunity, where I am a subscriber. The more I read it the more I realise we share a common approach in valuing stocks (i.e. moats at a reasonable price with a margin of safety), we also share the same taste on blog templates 🙂

The recent post on Silver Chef cought my attention, as I like rental businesses because if they get right the utilization rate, then ROIC is amazing. Comparing Silver Chef with other rental stocks, I think Lavendon and Northgate offer better value, as they are cheaper and yield a better divi. Their stock charts also look oversold.
m11Lavendon is the leader in ladders, specialising in such niche offers better bargain power with customer sand suppliers but also is more cyclical.

Today Lavendon trades at a down to earth P/BV  x0.97, one of the cheapest in sector

Name Ticker Mkt Cap (GBP) Price To Tangible Book Value Per Share P/B ROIC LF EBIT / EV Yld 1Y Tot Ret
Average                   820                  2.96    2.1               7.0 6.1 -18.5
VP PLC VP/ LN                  289                   4.03    2.5              11.4 8.2 10.8
ANDREWS SYKES GROUP PLC ASY LN                  138                   3.17    3.2              20.5 10.7 10.9
LAVENDON GROUP PLC LVD LN                  217                   1.27    1.0                2.4 5.4 -33.6
SPEEDY HIRE PLC SDY LN                  212                   1.22    1.0         (3.4) 1.4 -45.8
HSS HIRE GROUP PLC HSS LN                  170  #N/A N/A    1.1 (2.2) 2.1 -46.1
SILVER CHEF LTD SIV AU                  171                   3.42    3.3                6.7 5.7 11.5
NORTHGATE PLC NTG LN                  526                   1.20    1.2                9.3 8.0 -37.5
ASHTEAD GROUP PLC AHT LN               4,840                   6.41    3.4              11.4 7.4 -18.3


Although technical analysis isn’t my forte, Lavendon seems oversold

Lavendon stock chart

Lavendon bloomberg quote : 4% divi, awards patience

Lavendon bloomberg quote


Makes decent margins, consensus forecasts single digit growth, Leverage seems reasonable. I don’t know what they plant to do with CAPEX, the GBP71m consensus forecast looks quite high.

Free cashflow yield test: If we were a private equity group, taking Lavendon private, we could pay say GBP 340m at today’s Entrerprice Value and get a nice Free cashflow of 30m (estimated as EBITDA 80m – CAPEX 50m), hence locking a decent 8.8% yield.

Lavendon financial analysis

Lavendon financial analysis

Lavendon stock chart

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