Cube Midcap Report (12 Mar 2020) – The plunge continues #CCR #TRN #FIN #CINE

Cube Midcap Report (12 Mar 2020) – The plunge continues #CCR #TRN #FIN #CINE

Good morning!

Another rough day in equities. The FTSE was down 5% when I checked, first thing. It is currently down 265 points, sitting at 5595.

The WHO declared Covid-19 to be a pandemic, and President Trump banned travel from Europe’s Schengen Area (excluding the UK & Ireland) for 30 days.

It’s all very unsettling and I’m not surprised to see people running from equities.

On the other hand, for someone who is going to hold equities for a very long time, an entry point like this is, in my view, the dream scenario.

(Please note that I am not calling the bottom – I don’t know how far the plunge in the FTSE, or anything else, will take us!)

Some RNS announcements I’m interested in:

  • C&C (CCR) – trading statement
  • Trainline (TRN) – trading update
  • Finablr (FIN) – operational update and independent reviews
  • Cineworld (CINE) – preliminary results
  • WH Smith (SMWH) – trading statement
  • Computacenter (CCC) – final results



  • Share price: 268.25p (-3%)
  • Market cap: £832 million

Trading statement

Please note that I have a long position in CCR.

It’s a calming update from this maker and distributor of Tennent’s Lager, Magners/Bulmers cider, and many other brands.

  • EPS growth 10% for FY February 2020 (in line with guidance)
  • EBIT to be “marginally ahead of current market estimates”

Matthew Clark and Bibendum (acquired from the failed Conviviality (CVR)) are performing as expected, too.

With every going so well through the end of February, it’s little wonder that C&C shares are outperforming the FTSE today.

CEO appointment

If you saw my previous coverage of C&C, I was disappointed by the abrupt departure of the former CEO in January. We are informed that the process to find a new CEO “is progressing”.


The medium-term guidance is unchanged: high single-digit EPS growth. “This guidance assumes no material or prolonged impact from COVID-19, which we are monitoring closely”.

My view

The assumption of no major impact from COVID-19 sounds very optimistic, but I have no plan to sell any of these shares.

Net debt (excluding IFRS 16 leases) was £255 million at August 2019, and today’s update informs us that the net debt/EBITDA multiple has fallen below the company’s own target of 2.0x.

The financial risk, therefore, is not large enough for me to be scared away.

In these scary times, as we saw with Flybe, financially weak companies will be under more pressure than usual. Having a focus on balance sheet strength really helps!


Trainline (TRN)

  • Share price: 340.5p (-13%)
  • Market cap: £1.6 billion

Full Year 2020 Trading Update

There is a clue in the name for this one, and most people are familiar with its useful booking service.

This full-year update is fine, as far as FY February 2020 is concerned.

Ticket sales grew in line with guidance, and revenue growth was “at the top end of already improved guidance”.

  • total UK ticket sales +14%, and total group sales +17% (helped by fast international growth).
  • revenue for Trainline +20% in the UK, +24% including international.
  • FY February 2020 EBITDA to be £82 – £86 million, ahead of IPO expectations. TRN has been listed for less than a yar.

As an interesting tidbit, I note that consumer spending on train tickets is growing much faster than business spending. Maybe business travel is less valuable, after all? There was “some slowdown in discretionary travel spend by large corporations in the second half of the year“.


Let’s skip ahead to the critical sections on Coronavirus and the outlook.

The trading environment has become more challenging in recent weeks. Trading softened significantly in February in Italy following an increased number of COVID-19 cases and demand has since weakened across the rest of International. UK demand has remained more resilient, although growth has slowed particularly from inbound travellers.

This covers the beginning of March. And for the rest of FY February 2021:

Given the  uncertainty surrounding COVID-19, Trainline is re-assessing its plans and forecasts for FY 2021. The Group expects to have greater visibility when reporting its full year results on 7th May 2020.

For the medium term, the Group reconfirms its guidance of high-teens percentage rate of growth in net ticket sales and revenue.

So as far as FY 2021 is concerned, there is a blank space where the guidance should be.

Honestly, I admire Trainline for admitting that it doesn’t know what is going to happen this year, particularly in the travel industry. Nobody knows.

My view

I’m a little surprised that TRN shares are down by 13%, much worse than the market’s overall drop today. How could anyone have expected the company to know what its FY 2021 outlook is, at this stage?

On the other hand, I did think that TRN’s valuation made little sense, when I looked at it last year. Some of the air needed to come out of valuations in certain parts of the market – and that is clearly happening now.


Finablr (FIN)

  • Share price: 10p (-55%)
  • Market cap: £70 million

Operational update and independent reviews

I mentioned Finablr in yesterday’s report, in the context of its scandal-ridden sister company NMC Health (NMC). Finablr is an unusual collection of payments businesses.

Today, it provides further confirmation that it is worthy of the bargepole treatment:

Finablr is currently taking urgent steps to assess accurately its current liquidity and cashflow position, which has been adversely impacted by a number of factors…

The factors are:

  • travel restrictions which reduce demand for FX/payment services and restrict the movement of physical currencies
  • credit downgrade of its subsidiary Travelex‘s bonds (GN note: this doesn’t per se affect liquidity or cashflow)
  • a “liquidity squeeze” at both Group and operational level (GN note: ???)
  • “adverse perceptions in the market” that NMC’s situation is relevant to Finablr.

But surely the market can be forgiven for thinking that NMC’s situation is relevant, when you have the same shareholders behind the scenes with dodgy dealings?

The Finablr Board plans to appoint an “independent financial advisor” to help it understand the liquidity and cashflow position at its own company.

When the Board itself doesn’t have the foggiest idea what is going on, but acknowledges that there is a “liquidity squeeze”, I see no reason for an ordinary UK-based investor to want to get involved.

It will be no surprise whatsoever if NMC and Finablr both turn out to be zeroes for existing equity holders.


Cineworld (CINE)

  • Share price: 45.905p (-48%)
  • Market cap: £629 million

Preliminary Results

The going concern statement in these results, as pointed out by Paul over at Stocko, is a shocker.

You might remember that I covered Cineworld less than a week ago, in this report (here’s the link).

I didn’t come to any firm conclusion. The complexity of Cineworld’s situation is that a large takeover is on the cards (for Canadian C$2.8 billion).

It’s a bad time to take on more debt for a group of cinema chains that is already heavily leveraged.

One important fact that I noted last week was the absence of covenants from most of Cineworld’s existing debt. So if it didn’t take on more debt, then its financial situation might not be very serious.

The opening paragraphs of today’s going concern statement backs up this view:

At 31 December 2019, the Group’s financing arrangements consisted of USD and Euro term loan totalling $3.6bn and a revolving credit facility of $462.5m (‘secured bank loans’) which had been drawn down by $95.0m. The revolving credit facility is subject to certain covenants, which are triggered above 35% utilisation, and the term loans also have cross default provisions in respect of this covenant. The Group is not currently at this revolving credit facility utilisation level and it is not expected to increase above this threshold in the period under assessment.

So if Cineworld just gave up on the acquisition, its balance sheet might survive. It wouldn’t be pretty, but it would be a lot easier.

The problem is that if the acquisition goes ahead, the covenants on the enlarged debt load might be a lot harder to satisfy:

Therefore, the Going Concern assessment has been made based on the proposed new banking facility structure and the enlarged Group’s forecasts. The additional financing for the Cineplex acquisition will include a secured incremental term loan for c. $1.9bn and a c. $0.3bn unsecured bridge loan. The bridge loan facility includes financial covenant ratios set at the same level as the secured bank loans of the Group, being a limit of 5.5x of Net Debt to Consolidated Adjusted EBITDA until December 2020

CINE does believe that under “reasonably possible changes in trading performance”, it won’t have a problem.

But, if there was a “total loss of revenue” for up to three months, then “there is a risk of breaching the Group’s financial covenants” (assuming no waiver from the lenders).

My view

The major problem here is that CINE seems determined to plough ahead with the acquisition of Cineplex in Canada. It says the deal will complete in the first half of this year.

CINE shareholders approved the plan on February 11th (RNS). 1.15 billion shares voted for the deal (out of a total shareholder base of 1.37 billion). It was unfortunate timing and I’m sure many of them regret their decision now.

Is there any way that shareholders might be asked again? Could activists try to prevent it from happening?

If it goes ahead, then shareholder wipeout is clearly a possibility, if Covid-19 produces a huge blow to revenues for a 2-3 month period (or perhaps a softer blow over a longer period).


WH Smith (SMWH)

  • Share price: £13.90 (-12%)
  • Market cap: £1.6 billion

Trading statement

This sounds like an unscheduled update from WH Smith, the newsagent with a particularly strong position in airports (currently less busy than usual!).

For H1 (to the end of February):

  • Total like-for-like revenue was down 1%.
  • Travel like-for-likes up 2%.
  • High Street like-for-likes down 4%.

In sum, underlying PBT in H1 will be in line with expectations.

Now let’s move on to the more pressing matter: Covid-19.

  • Asia Pacific (5% of Travel revenue) has seen a “significant impact”
  • UK (60% of Travel revenue), US (25%) and Europe all seeing a “material reduction in passenger numbers” over the past two weeks.

We get a revenue and profit warning. SMWH assumes a “modest normalisation in the fourth quarter” (June/July/August).

I’m not sure if I would be willing to assume normalisation by June. Euromoney, which I discussed in yesterday’s report, might cancel some large events in June.

Anyway, SMWH is assuming that UK Travel revenue from airports will be down a massive 35% in March and April, compared to prior expectations.

The end result of its forecasting exercise is that SMWH now thinks FY August 2020 revenues will be down £100 – £130 million versus prior expectations, and underlying PBT will be down £30 – £40 million.

My view

Compared to its peak in December, the SMWH market cap has reduced by £1.5 billion. This is 36 times the reduction in underlying PBT which the company is pencilling in for the year.

Something doesn’t add up here. Either it was ridiculously overvalued before, or the company’s assumptions about the Coronavirus are far too optimistic, or the shares are now cheap (or some combination of all of the above).

I’ve been a fan of this company for some time and it looks worthy of a place on the watchlist as a potential buy.


Computacenter (CCC)

  • Share price: £13.585 (-7%)
  • Market cap: £1.55 billion

Final Results

This large technology services group produces a very good set of results for 2019. I note the following comments by the CEO:

The current COVID-19 outbreak makes forecasting the future even more challenging. In the short term, we are urgently supporting our customers focused on their business continuity plans which involves the need for a greater degree of remote working. We have seen a surge in demand for laptop computers for this purpose. To-date, supply constraints from our Technology Providers have been minimal, although there are some concerns going forward. We do however have some concerns that in the medium-term, customers may postpone significant IT infrastructure projects while the current uncertainty remains.

In the longer term, we feel more certain, either because when this crisis is behind us, life will return to normal and the fundamental business drivers for IT growth remain or, if there is a long-term reduction in business travel and commuting with a consequent upsurge in remote working, it can only drive the need for technology even further.

It’s a really important point about the economics of the current situation. The need for laptops, the cloud, and remote working software has exploded.

Computacenter looks like a company which should do well regardless of the outcomes from Covid-19.



I note that the Dow/S&P futures are trading limit down again. Another exciting set-up for the afternoon US open, then.

Stay safe out there. Keep your hard hats on!

Best wishes



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    Re. CINE – It’s also worth remembering that just a few days ago, Cineworld’s largest shareholder sold £116m of stock (c.8%) to refinance a margin loan.

    The company holding these shares is controlled by CINE’s CEO and deputy CEO. Nice timing…

  • comment-avatar

    Ive bought a few bits and bobs today …..DOW is 72% of its peak value and FTSE 68% of its peak value . The floor may be 5100 Sept 2011 . If not 4800 July 2010 or 3530 March 2009 . Place your bets . The grease on the greasy pole seems to have lithium additive this time . Please not 3530 Mr Higher being .

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