Cube Midcap Report (18 June 2020) – Orderly transition at Hellenic Coke

Cube Midcap Report (18 June 2020) – Orderly transition at Hellenic Coke

Good morning!

Thank you to everyone who took part – viewing and chatting with me – on yesterday’s live stream.

I’m planning to do these more often. I won’t be doing one today, but watch out for more next week.

For today’s midcap report, I’m looking at announcements from:

  • Coca Cola HBC
  • Taylor Wimpey
  • Tesco
  • Stagecoach

Coca-Cola HBC

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Market cap £7.6 billion
RNS CFO to step down in the first quarter of 2021
Writer disclosure No position

The long-standing CFO steps down.

It’s not something I would worry about – he has been in the post for eight years, which I would say is long enough to expect anyone to stay in the same position!

He is giving plenty of notice and is leaving on good terms. So all is well.

This is a stock on my watchlist. It is up by more than 30% from the March lows, but is still at a nice discount to pre-Covid levels.

That discount reflects the lower Coke consumption in restaurants and other “out-of-home” venues. April’s lockdown revenues were down 37%.

Not sure when I’ll dip my toe into this one but continuing to watch it from a distance.


Taylor Wimpey

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Market cap £4.6 billion
RNS Results of the Placing
Writer disclosure No position

There is dilution of 11% for Taylor Wimpey shareholders.

The company has raised £522 million (gross) by issuing 360 million new shares at 145p.

In the proposal RNS last night, TW said “the fundamentals of the new build housing market remain strong”, despite the Covid-19 situation.

At the same time, it said there were signs of “dislocation” in the land market, i.e. significantly reduced numbers of buyers of land. In more detail:

Competition for land has reduced and this trend is expected to continue in the near to medium term as smaller and medium sized competitors are constrained by weaker balance sheets and reduced cash flows. Land vendors meanwhile continue to value certainty, liquidity, ability to execute, a strong track record and historic relationships. Management is also beginning to see an increased number of land acquisition opportunities from a broader range of sources, including those who may not normally have been land vendors e.g. smaller housebuilders.

The net cash position as of 14th June was marginal: cash of £646 million vs. borrowings of £640 million. There are also £650 million in “land creditor commitments”, of which £125 million fall due in the next six months.

My view – the promise of an average ROCE of 34% on the most recent 12 site acquisitions is noteworthy. The company’s medium-term target on deals is 21%-22%.

I wonder if very high ROCE of 30%+ can be achieved on this £522 million warchest?

The shares were in my buying range at its March lows, since I like these builders around book value – net tangible asset value per share was 100.5p at year-end, versus the March low of 101p.

At the current level, it could still turn out to be a bargain for investors, if it achieves the target and promised ROCE on deals this year.

 


Tesco

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Market cap £22.2 billion
RNS Tesco agrees sale of business in Poland
Writer disclosure No position

More simplification at Tesco.

The Polish business, which generated sales of £1.368 billion and an adjusted operating loss of £24 million last year, is sold to a Danish-owned group. It consists of 301 stores.

Net cash proceeds will be just £165 million, after costs, to be used “for general corporate purposes”.

The major benefit might be to stop distracting management:

Today’s announcement allows us to focus in the region on our business in Czech Republic, Hungary and Slovakia, where we have stronger market positions with good growth prospects and achieve margins, cashflows and returns which are accretive to the Group.

The fewer distractions from the more profitable parts of the group, the better!

 


Stagecoach

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Market cap £373 million
RNS Covenant Waiver
Writer disclosure No position

I’m not used to this one having such a low market cap.

It’s still in the FTSE-250, but I wonder for how long? It’s very near the bottom of the league table.

The RNS headline is the story:

We have taken the precautionary measure of agreeing a covenant waiver for the periods ending 31 October 2020 and 1 May 2021 with our group of lending banks for our facilities expiring March 2025.

As is commonly the case, SGC is now on “minimim liquidity thresholds” instead of traditional earnings-based covenants.

Liquidity headroom is over £800 million, more than twice its market cap.

I note from the May trading update that net debt was £270-£280 million (on a pre-IFRS 16 basis).

That trading update also showed liquidity of £800 million, but less than £600 million on an “adjusted” basis, after taking into account some events happening next year (e.g. some of the facilities expiring).

Debt levels don’t look much higher than their historical levels, but the problem is earnings  – can they support these debt levels in future? Will earnings rebound?

I’m seeing spooky videos online of empty London trains. How long will it take for London and other cities to come back to life? How long will it take for passenger volumes to recover?

Good luck to anyone holding this one.

 


 

See you bright and early tomorrow!

Graham

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    Like the idea of the video Graham, so you can watch live streams later. Kptjancsi made a good comment about making them shorter if it would mean more regular ones. Also agree with Laughton about Premium Bonds. Years ago I never thought I would be saying Premium Bonds, but interest in banks are a pittance now, might as well have a chance of a good win. The worst outcome would be a small loss of interest.

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    Thank you for your uploaded webstream from yesterday which was good. Also agree with your thoughts on the CCH discount – having bought some a couple of days ago on the basis that things go better with Coke!

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