Cube Report (6 Nov 2020) – Biden his time

Cube Report (6 Nov 2020) – Biden his time

Good morning!

Apologies for the “fake news” on Wednesday, although Trump really was looking strong at the time. Some amazing swings and roundabouts!

My Betfair account has been obliterated. Thankfully, I had it categorised and sized in advance as “recreational”.

My portfolio, on the other hand, has been having a great few days as the FTSE has recovered. Isn’t it strange how well stocks can perform after a lockdown announcement?

As 5500 was approached, I started to wonder if maybe my exposure to the FTSE still wasn’t big enough. But at 5900, I’m perfectly happy to leave things as they are:

  • short FTSE 5900 put (March 2021)
  • short FTSE 5850 put (June 2021)

As for individivual shares, I’ve had a huge one-day move upwards from H&T Group (HAT), although it only really serves to wipe out the losses seen over the prior few weeks.

There’s quite a few midcaps and bigcaps to look at today, let’s see how many of these I can quickly cover:

  • Rank Group
  • Premier Foods
  • Beazley
  • RSA Insurance
  • Scottish Mortgage Trust


Rank Group

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Market cap £357 million
RNS Results of Fundraise and Total Voting Rights
Writer disclosure No position.

Funds have been raised at 90p, through the issuance of 78 million shares. Gross proceeds of £70 million.

Director participation is as follows. Nice to see everyone taking part although nobody is betting the farm on it:

Majority shareholder Hong Leong Company (from Malaysia) is subscribing for 43 million shares, which should keep its percentage ownership roughly constant.

At 92p, the new market cap is c. £430 million.

My view – this is a prime example of a lockdown victim.

I had an email in my inbox from Grosvenor Casinos in the last day or so, informing me that they were temporarily closed again – sad times for employees.

On the basis that the balance sheet is stable, I could see this recovering very nicely. But you do need to be bullish on the “old normal” making an appearance.


Premier Foods

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Market cap £903 million
RNS Disposal
Writer disclosure No position.

£37 million disposal by Premier of its stake in Hovis. This includes “the repayment of outstanding loan notes and accrued interest”.

The price paid for the equity of Hovis is therefore unknown.

Premier says its investment in Hovis was “fully written down in 2016”. So even if the equity is not being valued at very much, at least Hovis can’t be written down any further!

PFD is a Covid winner, as people have stocked up their cupboads. The contrarian in me would treat this cautiously – surely there is a point at which the trend unwinds? Again, it’s a bet on whether we see the “old normal” back soon.

H1 results should be imminent, when I may look at this more closely.



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Market cap £1.9 billion
RNS Trading Statement
Writer disclosure No position.

Life continues to get more expensive for insurance customers:, as Beazley reports premiums increasing on renewal by 14%.

That helps to increase gross written premiums for Q1-Q3 by 16% (ahead of expectations).

The Covid-19 loss estimate is unchanged at $340 million. Importantly, “this assumes a resumption to some form of normality in the second half of 2021“. Otherwise, 2021 will cost up to an extra $50 million in Covid-19 claims.

The CEO is chirpy:

Pricing conditions are positive and we have the expertise and the capital in place to take advantage of these market conditions. We have great confidence in our ability to deliver mid-teens growth next year and strong shareholder returns in 2021 and beyond.

My view

It’s an exciting time for the insurers, as rates are rising dramatically. Beazley says that rates in many areas justify writing “materially more business”. I need to look more closely at Hiscox (HSX), which is perhaps my favourite in the space.

RSA Insurance

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Market cap £6.7 billion
RNS Further Statement regarding proposal
Writer disclosure No position.

A team consisting of a huge insurers from Canada (Intact) and Scandinavia (Tryg) sees value in RSA at 685p (plus 8p interim dividend for existing RSA shareholders).

The Board of RSA appears to want to recommend the deal:

The Board of RSA has indicated to the Consortium that it would be minded to recommend the Proposal, subject to satisfactory resolution of the other terms of the Proposal, including a period of due diligence which is currently underway by the Consortium.

I’m feeling more confident than ever that the UK market, and perhaps UK financials, are simply too cheap. These Canadians and Scandinavians appear to agree.

The deal is not exactly guaranteed, however, and the RSA share price at 649p reflects this.

Scottish Mortgage Trust (SMT) has made very heavy disposals of its Tesla shares. Very sensible. (I am currently short Tesla).

The increase in Tesla’s stock price and its dramatic impact on the Trust’s returns should be seen in context. Whilst the company and its colourful founder attract an unusually high degree of attention, emotion and noise, the underlying return picture is far from an aberration. Returns are concentrated in a handful of big winners. With far less drama, this has been the case for our holdings in both Amazon and Tencent over the past decade. Tesla’s success has been earned over a period of ownership extending back to 2013 and, as with most successful investments, we have endured large drawdowns in its stock price on the way to the current position.

Tesla has made significant operational progress. It has successfully added capacity and the production ramp of its latest model has progressed far more smoothly than for any of its previous vehicles. Demand for its products is strong and the response from its traditional competitors remains muted. It is still our largest holding even though we sold over 40% of our shares during the period (raising £1.18bn) to ensure that the portfolio has an appropriate level of diversification.

I must applaud the managers for the tremendous profits, but I agree with them that they need to sell down the position.

Only multiple capital raisings have prevented Tesla going from bankrupt, on many occasions throughout its corporate life.

Only two days ago, Musk admitted something the bears already knew. Tesla was about a month from bankruptcy during the Model 3 ramp.

I believe that if the capital markets ever dry up, Tesla will face solvency issues – or dilution for existing shareholders will be terrible. I still do not believe that it has a sustainable business. As ever, time will tell.

That’s it for now, have a great weekend!




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