Cube Midcap Report (22 July 2020) – Out-of-Home consumption takes a dive

Cube Midcap Report (22 July 2020) – Out-of-Home consumption takes a dive

Good morning!

I’m sorry there won’t be a live-streaming video today, due to time constraints. But I don’t see why I won’t be able to do one tomorrow.

In midcaps today, there is:

  • Britvic (BVIC)
  • Paypoint (PAY)
  • Computacenter (CCC)
  • Kingfisher (KGF)

In small-caps, please join me in welcoming Leo with his first article here: Surface Transforms – Profound Transformation?

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Timings – finished at 2.30pm.



  • Stock data should display here.
Market cap £2.1 billion
RNS Q3 Trading Statement
Writer disclosure Long BVIC.

I’ve been holding this one since late 2018. It looked a smart investment (until Covid).

Q3 covers from April to June. Revenues were down 16.3%, so that year-to-date there is now a decline of 5.1%.

Britvic continues to pessimistically assume that monthly EBIT is down by £12 million -£18 million, which was its estimate during the full lockdown. Conditions in the hospitality industry are still dire, I suppose.

For context, last year’s adjusted EBIT was £214 million, or £17.8 million per month. So the company could even be running a small adjusted EBIT loss per month, in the worst-case scenario.

A snippet from the CEO comment:

I am pleased with both the market share gains and the performance across the channels open to us, however in the near term there remains a high degree of uncertainty about the pace and level of full recovery.

My view – brokers currently expect adj. EBIT to fall to less than £160 million, down by over £60 million compared to pre-Covid forecasts. You can cut that up in a number of ways – e.g. two months at an impact of £18 million, and another two months at an impact of £12 million.

I am leaning more pessimistic than the brokers, because I am leaning towards a very pessimistic view on the economy in the short-term and especially on leisure food and drink. I hope that I’m wrong.

Also, let me remind you that net debt at H1 (mid-April) was significant at £665 million. I was looking forward to lots of progress on this front in the current year – and in the fine weather and a strong economy I’m sure it would have been possible. More patience is going to be needed from me.

I’m frustrated by what Covid has done to Britvic’s performance,  but many companies have been much more badly hit. The full-year result should be ok, and the company can then build on that.

I’m happy to stay invested – unless Out-of-Home consumption is ruined permanently, I think it will prove to be worth more than the current market cap.



  • Stock data should display here.
Market cap £420 million
RNS Trading update for the three months ended 30 June 2020
Writer disclosure No position.

Most people are familiar with this payment processor:

I’m impressed that revenues are down by just 6.6%, most of which is due to a contract with British Gas coming to an end. Excluding that impact, revenue fell by less than 3%.

Key points:

  • retail services are up 10% (thanks to the successful launch of “PayPoint One“).
  • bill payments revenue down 28%, or 20% excluding the British Gas contract. This side of the business looks quite old-fashioned.
  • revenue in Romania up 8.2%.

The CEO calls it a “solid” performance.

Most sites were back at the end of June, though hundreds of ATMs were still suspended. The cashless society edges closer:

Balance sheet – net debt of £7 million.

Dividends – still paying a final dividend for FY March 2020. Green flag.

My view

I used to keep quite a close eye on this one. It has a track record for “quality” performance and I think I need to keep a closer eye on it. It’s still trading at a nice discount to pre-Covid levels, and I think many of its services are essential and therefore should remain popular in the post-Covid world. Possibly too cheap.



  • Stock data should display here.
Market cap £2.25 billion
RNS H1 2020 Trading Statement
Writer disclosure No position.

This is another of the rare winners from lockdown (although the initial share price reaction said otherwise – you could have doubled your money already, if you bought this in March).


The Group’s adjusted profit before tax in the first half of 2020 has turned out to be substantially ahead of the same period last year

I thought it was almost funny, when I discussed it in May, that CCC refused to provide guidance for the rest of the year. It was doing much better than expected, and I suppose it felt unable to predict how much longer that would continue.

There has been “a surge in demand for IT equipment to enable home working”. I did my bit to help the industry, stocking up on electronics at the height of the lockdown. If Cube was a slightly larger business, I’d have been knocking on Computacenter’s door.

CCC now says it is able to make a forecast for H2, but doesn’t tell us very much about that forecast. There is “a reduction in uncertainty in our markets for the second half of 2020“, and H2 profitability “should be much improved on the forecast considered at the time of our Q1 2020 Trading Update on 23 April“.

For what it’s worth, I can see a forecast in the market for EPS of 91.3p, which looks extremely conservative to me. EPS of 89p was achieved last year, and this year should be much stronger.

When you take CCC’s strong balance sheet and superb positioning into account, I think the current valuation can be justified.



Market cap £5.3 billion
RNS Trading Update
Writer disclosure No position.

The market loves this update. I suppose when people are forced to spend more time in their house, they will spend money to make their homes as nice as possible.

Kingfisher has continued to experience strong demand across its markets, and Q2 20/21 Group LFL sales (to 18 July) are up 21.6%. Year to date (to 18 July), Group LFL sales are down 3.7%.

Thanks to the strong sales performance and cost cuts, H1 adjusted PBT will be ahead of the prior year.

The e-commerce sales are also worth highlighting. As a general observation, I think the online operations of bricks-and-mortar retailers don’t generate the excitement among investors that perhaps they should:

(Note: “Group LFL” does include E-commerce sales, too.)

Outlook – low visibility and no guidance. Another company doing well which feels unable to predict how long it will.

I use this company as a barometer of retail trends, and don’t have a strong view on its prospects. If you do, please let me know in the comments!


Calling it a day there, thanks for dropping by! See you tomorrow.




Wordpress (1)
  • comment-avatar

    Great summaries Graham.
    I’m trying to reconcile

    “because I am leaning towards a very pessimistic view on the economy in the short-term”

    with your long spreadbet on the FTSE. I appreciate that the stockmarket is forward looking but if evidence comes out to confirm your economic scenario isn’t that bound to take it’s toll on share prices and hence your FTSE call?

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