Cube Midcap Report (8 Jan 2020) – Vegan steak bakes #GRG #SFOR #SBRY #CLI #FIN

Cube Midcap Report (8 Jan 2020) – Vegan steak bakes #GRG #SFOR #SBRY #CLI #FIN


The stocks I plan to cover today are as follows. Please check back throughout the morning for updates!

Finished at 13.20pm.

Greggs (GRG)

  • Share price: £24.26 (+1%)
  • Market cap: £2,455 million

Trading update

Full-year underlying PBT will be “slightly higher than our previous expectations”. Such rare words from a retailer!

Like-for-like sales are up 9.2% – super result. Though you probably haven’t forgotten the 2018 heat wave or the 2018 cold wave which wreaked havoc for many retailers, including Greggs. The weather in 2019, by contrast, was much more reasonable, making the comparatives much easier to beat.

But few retailers, whether of the food or non-food variety, took advantage of the conditions to post large like-for-like sales growth. There is no denying that Greggs is a stand-out performer.

Net growth in the number of shops is 97, leaving a total of 2,050 at year-end.

While 2019 was a brilliant year for the company, the CEO’s commentary is suitably cautious:

“Looking to the year ahead, we face strong sales comparatives and cost inflation headwinds present a challenge.  However, with strong momentum in the business we see further growth opportunities across a number of channels as we invest in new ways to make Greggs more accessible and convenient for customers.”

National Living Wage and pork prices are mentioned specifically as cost factors.

Also, on the weather front, I note that snow, gale-force winds and torrential rain are in store next week. Hopefully, it is just normal winter weather that will blow over (literally) in a few days! But I thought I should mention it, as a factor facing Greggs and the rest of the High Street.

Trading update – the company has launched a “Vegan Steak Bake” and Vegan Doughnut. More product launches are coming this year, “to suit a broad variety of dietary choices”. I wonder what they’ll think of next!

Employee bonus – £7 million will be paid, to recognise the contribution of employees. A classy move, following a £35 million special dividend to shareholders last year.

My view – The Greggs formula stands out as a proven success – the data says that it has been profitable every year since before I was born.

It’s a remarkable track record and probably deserves the premium valuation which the market has awarded it.  It’s the sort of company which would make me break my policy of avoiding retailers.

Personally, it’s not somewhere I would want to go regularly. But I had a pizza slice at a Greggs in Newcastle last month, and was not disappointed!

EPS might hit 100p in 2021, according to forecasts (98p latest consensus, before today’s earnings beat). So the earnings multiple is perhaps 24x, if you are willing to look ahead two years.

I don’t think anyone would be crazy to pay that sort of multiple for a business which has succeeded like this one has. I’ll remain safely on the sidelines for the time being.


S4 Capital (SFOR)

  • Share price: 190.5p (+0.8%)
  • Market cap: £894 million

Announcement of merger and trading statement

Sir Martin Sorrell’s new vehicle announces that its large subsidiary, MediaMonks, will merge with Circus Marketing.

Circus is headquartered in Mexico City, making content and campaigns for well-known brands.

On pricing:

Valuation multiples are consistent with the Company’s usual metrics of approximately 1-2X revenue and 5-10X EBITDA, including contingent consideration.

Projected revenues at Circus are $38 million, so there is an implied price tag for the deal of up to $76 million. It will be paid half in cash and half in SFOR shares.

Trading statement: trading is in line with expectations. Like-for-like revenue and gross profit growth is >40%.

My view: I don’t have a strong view on this one. It’s purely a question of whether you buy into Sorrell’s vision for a new digital agency without any of the the legacy business of the pre-internet era.

I prefer to invest in the scalable technology underpinning the industry (i.e. $GOOGL, where I’m long), rather than the labour-intensive organisations which use the technology. So I’m not tempted to study this in greater detail.


Sainsbury (SBRY)

  • Share price: 228.6p (-1%)
  • Market cap: £5.1 billion

Trading statement

I covered Morrison’s yesterday – its H2 like-for-like sales were down 1.7% (ex. fuel), down 2.8% (including fuel).

These Q3 numbers from Sainsbury are less poor. Yellow highlights for the relevant figures:

Less poor, and yet still rather grim.

In categories, clothing and online groceries were strong. General merchandise was poor (minus 3.9%).

CEO Mike Coupe makes very positive noises around Argos: “biggest digital Black Friday to date and record sales through mobile”. But did this translate into a good final result?


Retail markets remain highly competitive and promotional and the consumer outlook continues to be uncertain. However, we are well placed to navigate the external environment and are executing well against our strategy.”

The strategy discussion is in line with what you might expect – offering value, distinctive products, more self-checkouts, etc.

My view

This is another supermarket which does not earn its cost of capital. I would steer clear.


CLS Holdings (CLI)

  • Share price: 288.75p (-2%)
  • Market cap: £1,176 million


This property investor makes a £19 million investment in a Staines office. The property has “strong reversionary potential with a yield of 7% once fully let”. Sounds promising.

EPRA NAV per share was 325p in June. This could be worth researching in greater detail, given the apparent discount on offer.

This is not a REIT. It has provided its investors with a great deal of capital appreciation, rather than income.


Finablr (FIN)

  • Share price: 129.35p (-16%)
  • Market cap: £905 million


This company is on my radar since it was named by Muddy Waters in the investigation of NMC Healthcare (NMC). NMC was covered in Monday’s Midcap Report.

Finablr was listed only last year and has the same founder and Chairman as NMC, namely the Indian billionaire BR Shetty.

Finablr is a collection of financial businesses, primarily to do with international money transfer.

One of them, Travelex, is currently out of action, due to a cyber attack. Finablr confirms that its other companies are unaffected. It also says it “does not currently anticipate any material financial impact for the Group”.

But that’s not the only bit of bad news for Finablr shareholders today.

In a separate RNS issued by Credit Suisse, we learn that two major shareholders have sold their holdings in NMC and Finablr, allegedly in order to deleverage.

15% of NMC has been sold at £12 (a discount to the current share price and to yesterday’s closing price of c. £15) and 6% of Finablr has been sold at 135p. Neither of them will own shares in Finablr, following this transaction.

My view – I’ll reserve judgement on Finablr until it has a longer track record, but there are large columns of smoke billowing above it right now. The association with NMC and the insider sales are a bad look.



That’s it for today – I’ll be back tomorrow with another look at Midcaps!

Thanks for supporting this website.

Best regards




Wordpress (2)
  • comment-avatar

    Thanks for the coverage on Finablr. Had this one on a watchlist but after NMC and now your caution I think it will be removed!

    • comment-avatar

      No worries – you’re welcome. To be honest I don’t have a strong view on Finablr at all. Simply noticing some smoke. The fire is unconfirmed!

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