Cube Midcap Report (24 June 2020) – Livestream @ 12 Today

Cube Midcap Report (24 June 2020) – Livestream @ 12 Today

Good morning!

Please tune in at 12 today for the latest live-streaming commentary video:

The FTSE is wobbling today over “second wave” fears.

In mid-caps today, I’m going to look at:

  • Wetherspoon
  • Crest Nicholson

Wetherspoon

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Market cap £1,310 million
RNS Further update on COVID-19
Writer disclosure No position.

I mentioned the placing here back in May.

It raised £141 million (gross), as net debt/trailing EBITDA was uncomfortably high, approaching 4x. Net debt was £836 million as of March 2020, prior to the placing.

Today we learn the Wetherspoon’s is receiving another £48 million through the Coronavirus Large Business Interruption Loan Scheme.

Reopening – the big re-opening news this week has been that pubs, restaurants and hotels in England will be back from July 4th. Wetherspoon’s will re-open in England on that day.

New pubs – no new pub development projects in the next 12 months. Sounds sensible, given the uncertainties facing the sector and the debt-filled balance sheet.

Staff survey – 82% of staff responded to a survey.

Of those who responded, 99% said they intend to return to work. But 11% can’t return immediately.

The other 1% have either resigned or intend to resign. There is surely quite a lot of churn in normal circumstances, and I’m surprised that only 1% are leaving. Perhaps a reflection of the tough job market?

There are also some stats on Covid-19 prevalence among staff.

My view

The shares are up c. 10% since I covered them last. They are still superficially cheap against “normal” earnings.

For the value-oriented who are bullish on a rebound in the hospitality industry, this will be of interest.


Crest Nicholson

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Market cap £584 million
RNS Half-year Report
Writer disclosure No position.

The half-year results (to the end of April) at this housebuilder are fairly awful – revenue down over 50%, and adjusted operating profit down 84% to only £11 million.

Sites and offices were all shut down in April.

The statutory result is an operating loss of £44 million.

Net debt rises to £93 million., though average net debt falls (there are chunky intra-period movements). Gross borrowings are much larger (almost £350 million), as the company’s £250 million RCF has been fully drawn down.

Guidance is reinstated: full-year adjusted PBT of £35 – £45 million. This is a downgrade to the c. £59 million consensus forecast you’ll find in financial software packages.

Current trading and outlook

Re-opening was phased from May 18th.

Key points from the outlook statement:

While we have been encouraged by the improvement in the trading environment in recent weeks, with increasing levels of web traffic and footfall being converted into reservation rates similar to those seen prior to the lockdown, it remains a highly uncertain operating environment. 

…the Group has recently announced plans to defer its planned creation of another division and further reduce its overheads. 

And on the balance sheet:

The Group has a £250m revolving credit facility (RCF) provided by four of the UK’s largest banks, expiring June 2024. It also benefits from £100m of senior loan notes which mature between 2024 and 2029. In addition, the availability of a further £300m of liquidity has been finalised through the CCFF commercial paper programme should the Group require it. At present this facility is undrawn.

Crest is “maintaining regular conversations with our lenders”, though it thinks it will be able to comply with its debt covenants.

Restructuring – some divisions are being merged. Sounds reasonable to simplify and unify these parts of the business.

My view

Tangible equity is nearly £800 million, so I think this could offer value at current levels. But I would have to stress-test the balance sheet and learn more about its culture and specific prospects, before taking the plunge.


That will do it for today, thanks everyone! Roland is here tomorrow.

Cheers

Graham

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    As Tim Martin is the human equiv of Marmite expect huge amount of coverage in press and online including pictures of drinkers not observing the 1m “guidance”

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