Cube Midcap Report (23 April 2020) – Recession in ice cream consumption

Cube Midcap Report (23 April 2020) – Recession in ice cream consumption

Good morning!

The FTSE continues to tread water just below 5800.

The lockdown in Europe is tentatively and gradually being curtailed. Small shops in Germany are opening again.

The mood in the UK/Ireland, among political leaders, remains very cautious, even though it is widely acknowledged that there was a “peak” in infections and deaths several weeks ago. There is a debate around whether the lockdown helped to create this peak (or if the peak happened before lockdown), and whether removing elements of lockdown would risk the creation of a second peak.

The economic damage being caused is (literally) off the charts, and will have long-term consequences for almost everybody.

These big companies are on my radar today, I’ll see how many I can cover before lunch:

  • Unilever (ULVR)
  • Compass (CPG)
  • Croda (CRDA)
  • AJ Bell (AJB)
  • Computacenter (CCC)
  • Taylor Wimpey (TW)
  • Vistry (VTY)

In the Forum, I’ve asked for your shorting ideas. I don’t usually have any short positions open (and don’t currently have any), but I’m curious as to what fresh opportunities I might be missing – particularly in the retail, travel and hospitality sectors.

Finished at 14.30.

Featured image source:


  • Stock data should display here.
Market cap £108.5 billion
RNS 1st Quarter 2020 Trading Statement
Writer disclosure No position

Not the most inspiring quarter from Unilever (owner of Ben & Jerry’s).

Underlying performance is flat. Actually a little worse than that, since price trends are negative (minus 0.2%) and had to be made up by volume growth (plus 0.2%).

The emerging market performance was worse than performance in developed markets – perhaps reflecting the greater economic pain felt in developing economies?

China – slow from January, when the crisis started there.

India/LatAm – both regions  were slow or challenging for Unilever, even before the lockdown began.

To me, this table suggests that the Americas and Europe were willing to buy more product during the lockdown, but the developing markets were priced out of it:

USG = underlying sales growth. UVG = volume, UPG = price.

Dividend – flat.

Supply – is maintained. Food and household products are “essential”, after all, from a health and hygiene point of view!

Factories are up and running, and production has mostly been uninterrupted. Capacity for hand hygiene/food production is being selectively increased.

Demand – very mixed. Food for in-home consumption and hygiene products are doing well, and panic buying boosted volumes.

On other hand, out-of-home food and ice cream consumption has collapsed. Bad news for Ben & Jerry’s!

This table shows growth in the smaller Home Care segment offsetting Food and Refreshment decline:

Winners in the brand portfolio include Cif (I still call it Jif) and Domestos. Skin cleansing and deodorants also did well.

A rare winner in the food segment was Hellmann’s, thanks to the demand for in-home consumption.

Covid-19 special measures

Some feel-good information here.

  • €100 million donations of product for various organisations
  • Workforce protected from sudden drops of pay (e.g. if they are unable to work currently)
  • €500 million of “cash flow relief” for SME suppliers and small customers. That will do wonders for business relationships – bravo! JMAT made a similar move yesterday.

My view

The market remains very optimistic about Unilever, pricing it at around 18x forward earnings.

I regret to say this, but I think the market is right.

Indeed, I’m a potential buyer of Unilever shares, even at the current level. It’s a share that I aspire to own for the long-term, when space becomes available in my portfolio for it.

If its sales are nearly flat and it’s declaring the same dividend as before, during the greatest economic disaster we are likely to see in our lifetimes, then I think it fits the bill as a defensive share.

It’s not just defensive, but high-quality defensive too, with a ROCE around 20%.

I only wish it was a little cheaper.



  • Stock data should display here.
Market cap £21.0 billion
RNS COVID-19 Update
Writer disclosure No position

I was gloomy about Compass in March.

I thought that the market might be pricing it correctly around £9, on the basis that an extended lockdown would push it into a loss-making position and that its debt covenants might become an issue.

Since then, it has bounced back very well – the shares are up nearly 50%, as the markets look beyond lockdown to a resumption of normality.

Today’s RNS

A few feel-good elements here. Not quite as positive as Unilever, though. Given the nature of what it does (including foodservice and facilities management), it has had to furlough some of its 600,000 employees. Where possible, employees have been redeployed to Healthcare services.


This is a disastrous scenario.

“Business & Industry” is 75% closed, and previously accounted for 39% of revenue.

At a Group revenue level, it is 55% closed:

Monthly revenue last year was £2.1 billion. The current loss of monthly revenue is therefore c. £1.1 billion.

Compass reports that it is cutting its monthly cost base by £450 million, through various cuts to the wage bill.

Half-year operating profit (for the period to March) was down by around 28%-29%, within the range of expectations. I fear that the impact in H2 could be far greater, unless the lockdowns end as expected.

Net debt is now £4.9 billion.

It was at £3.3 billion six months earlier.

It still has lots more it can borrow from its £2 billion RCF, and it has a new £800 million RCF with the same banks.

It has also borrowed £600 from the government’s Covid Corporate Financing Facility.

My view

The big problem here is the covenants attached to some of the debts at Compass. Net debt/EBITDA must stay below 4x.

On a trailing basis, net debt/EBITDA is now around 1.6x -1.7x.

If EBITDA merely halves, this becomes 3.2-3.4x, assuming that net debt is unchanged.

I don’t think it’s hard to imagine EBITDA halving, with revenues currently down 55% and massive disruption occurring.

So you can see why I would be a little nervous about this

Indeed, Compass confirm discloses the following:

As a precautionary measure, we are in constructive discussions with our US Private Placement investors to obtain a waiver of the covenant tests

Companies in debt don’t do this for fun. They do it when they are worried.

Even though the share price is up 50% since last time, I still think this is a risky stock to hold in the current environment.



  • Stock data should display here.
Market cap £21.0 billion
RNS Covid-19 Update
Writer disclosure No position

We last looked at this chemicals company in February. I’ve been a fan of this company, but it has always been too expensive for me.

Today’s update:

  • All principal manufacturing sites are open (since it supplies healthcare, crop care, cleaning and sanitisers). Some restrictions on operations in India and Singapore.
  • No plans for furloughs or pay cuts for staff.

Demand – “solid”.

Profitability – “broadly in line with expectations and the prior year”.

The geographic performance is very mixed, with no obvious trends.

As the second quarter commences, whilst conditions in some markets are more variable than usual, the value of our customer order book remains solid and in line with normal circumstances. However, visibility is limited and there is uncertainty as to how the COVID-19 crisis will affect future sales.

Balance sheet – not a huge concern, if production and sales are continuing more or less as expected.

Net debt was last seen at £550 million, producing an EBITDA multiple of 1.4x (versus 3.5x in the covenant).

Since EBITDA appears unlikely to crater, I have little concern on this front.

Croda’s management are relaxed, saying that they can absorb “an extended period of uncertainty”. I agree.

My view

A good company that is always too expensive for me.


AJ Bell

  • Stock data should display here.
Market cap £1.3 billion
RNS Q2 Trading Update
Writer disclosure No position

Financial services firms who benefit from increased trading activity have generally been doing well. In some cases, spectacularly well.

See Roland’s discussion of London Stock Exchange earlier this week, and my own commentary on IG Group (in which I have long position).

Let’s see how AJ Bell, which I like to think of as the little brother of Hargreaves Lansdown (HL), has been doing.

  • Customer numbers are up 9% in the quarter (22% over the year)
  • Underlying net inflows are £1.4 billion in the core “Platform” business (InvestCentre and Youinvest). This is 3% of opening assets under administration (AUA).
  • But negative market movements drag AUA down by 12% during the quarter

Growth is particularly strong in direct-to-consumer (Youinvest), up 13% in the quarter. I consider that to be a very high-quality business and with growth numbers like that, it’s clearly very popular.

My view

It’s a good company, of that there is little doubt. I can’t possibly pay the current rating (37x).



  • Stock data should display here.
Market cap £1.7 billion
RNS Q1 2020 Trading Update
Writer disclosure No position

This large IT group is an important part of the technological infrastructure.

My instincts are that it should be very busy at this time, let’s see:

  • Q1 revenue reduces slightly compared to last year, but Q1 profitability is unchanged.
  • trading has been “more robust than we anticipated at the start of this crisis

Great news!

I see that this share provided a particularly good trading opportunity in mid-March. The low was around £9.

Some customers are hyper-busy as they scramble work-from-home continuity plans, while others have stopped doing anything:

There has been a surge in demand from many of our customers to enable business continuity particularly around homeworking and network resilience. Conversely, particularly in the industrial sector, where a large number of our customers have had to cease production, our engineers and consultants are unable to work.

10% of employees across Europe are furloughed. Different wage-subsidy schemes apply in each country.

Dividend – CCC won’t propose the final dividend at the AGN, even though its cash position is admittedly strong.

Instead, it wants to have extra funds available to support the cash flow of its smaller and struggling customers.

That’s probably a good idea, from a relationship perspective.

But net funds were last seen (December 2019) at £137 million.

Last year, dividend payments cost just £36 million.

I do think CCC could have paid a dividend, even a smaller one.


Very good (which again leads me to believe that it could have paid a divi):

…the Board believes that the pre-tax profit performance in the first half of 2020 will be broadly in-line with, or slightly ahead of, that of the first half of 2019. The second half of the year is more difficult to predict but currently our full year expectations remain unchanged.

My view

CCC is well-placed to benefit from the work-from-home and go-online trends which the current crisis is accelerating.

It also has a fine track record of profitability and shareholder returns. I do expect the dividend to be reinstated before too long.


Taylor Wimpey

  • Stock data should display here.
Market cap £4.9 billion
RNS Trading Statement
Writer disclosure No position


  • Stock data should display here.
Market cap £1.8 billion
RNS COVID-19 update
Writer disclosure No position

Both of these homebuilder shares are up by 11%.

Persimmon (PSN), despite not issuing an RNS, is also up 9%.

The bottom line is that construction is starting again.

From Taylor Wimpey:

Remobilisation to start on 4 May with a phased process based on detailed new site operating protocols developed in compliance with strict social distancing requirements, on the majority of our sites in England and Wales.

The selling process is still online and digital. Customers seem to accept this.

Similarly, Vistry is getting back to work on most of its sites, and is selling to customers with virtual tours. Completions are still happening.

My view

Great news! Not just for their shareholders, but for everybody. Construction activity needs to happen.

Even if the new protocols slow down the pace of work, it’s infinitely preferable compared to seeing the sites lying idle.



That’s all for today, thanks everyone.

Please do smash the like button if you enjoyed this report.





Wordpress (1)
  • comment-avatar

    The reason for caution shown by the Uk government in regards to lifting the lockdown in England is simple :- Covid is a disease spread in dense population by exhaled breath or contact with surfaces contaminated by same . England has one of the most dense populations in the world at 429 people per SQ KM . Roughly double that of nearly all countries in Europe . South Korea has more but was hit by boths SARS & MARS which cleared out many less immune members of thier society prior to COVID arrival . Sweden by comparison only has 25 persons per SQ KM which is why it is doing comparitively better and makes it a useless comparison . In ENGLAND there is NO WHERE to hid from this virus … home or no holiday home because you will come across infection if restrictions are lifted to early .

  • Your Cart