Cube UK Report (14 March 2021) – A string of positive updates!

Cube UK Report (14 March 2021) – A string of positive updates!

Hi everyone,

You will no doubt have noticed that the UK report has been rather sporadic here lately.

One of the reasons for this is that I want to spend more time doing in-depth research, and this sort of research doesn’t lend itself very easily to a daily article covering the latest news.

Of course, all of my stock market/financial research will continue to be published here on this website, for our members. I’m trying to come up with a way forward that will enable me to do the sort of detailed work that I really want to do, while also providing you with coverage of the latest events. I can’t do both without some form of compromise.

What might end up happening is that the UK report becomes a weekly article, or a briefer daily article.

Anyway, here’s my initial thoughts on three UK stocks I own that had news recently.

 


Next

  • Stock data should display here.
Market cap £10.2 billion
RNS Acquisition of an interest in Reiss
Writer disclosure Long NXT

This is a position I’ve held for a reasonable length of time – since March 2017.

My entry price was £42.5/share. So with dividends and share price appreciation to nearly £77, I’ve done fine.

My belief is that Next is extremely well run, and that its online positioning means that it can survive the ongoing industry changes.

Anyway, this was a nice announcement. A small deal – I like these, because they mean that I don’t have to revise my entire investment thesis!

£33 million is being spent on the equity of the target, along with a £10 million.

The target is Reiss, a luxury brand. Next will own 25%, and has the option (until mid-2022) to acquire a further 26% interest (i.e. to achieve a majority stake).

There is an underlying link between Next and Reiss, disclosed in the RNS. The Reiss CEO was previously a director at Next, and was there for 28 years.

Next plans to be a hands-off investor:

An important aspect of the NEXT investment is that Reiss will retain its management autonomy and creative independence. Reiss will have its own independent Board of Directors and continue to be headquartered in London.

Reiss achieved sales of £227 million in FY Feb 2020. So the price paid by Next, at least in terms of the price/sales multiple, doesn’t ring any alarm bells (the deal implies that the Reiss equity is worth £132 million).

The plan is as follows:

Reiss’s websites and Online operations, both in the UK and overseas, will be contracted to NEXT through NEXT’s Total Platform.  Total Platform will also provide warehousing and distribution services for Reiss’s retail, franchise, wholesale and concession businesses, all of which will continue to be operated by Reiss….

The intention is that NEXT’s infrastructure – its online systems, warehousing, distribution assets and sourcing base – can serve as a launch pad for Reiss’s growth plans, both in the UK, and overseas.

My view

I have no objection to this deal. For most of my companies, I’m happy for them to perform small, “bolt-on” acquisitions where simple logic can justify the deal (e.g. stripping out costs and improving profitability or growth).

I’m happy to continue holding Next. And I’m also a happy customer! A very nice company and stock, in my view.

 


IG Group

  • Stock data should display here.
Market cap £3.1 billion
RNS 3rd Quarter Results
Writer disclosure Long IGG

I’ve had some issues with IG recently.

Firstly, some complications with my account there, arising from Brexit.

Secondly, I reacted negatively to their recent acquisition of tastytrade.

But I have a new personal account with IG Europe mand I haven’t sold my shares in IGG yet.

And the release of this update on Thursday did a lot for the shares, which have now recovered most of their losses since the recent acquisition was announced.

Headline numbers for Q3:

  • revenue £230 million, up 65% on the prior year
  • 230,000 active clients, up 60%
  • revenue per client same as Q1 and Q2

I’m pleased to see the revenue in “Stock Trading and Investments” picking up. I was a customer of their Share Dealing platform, until I got removed by Brexit. It is a brilliant platform, in my view.

Year-to-date revenue in Stock Trading and Investments is £29.7 million. It includes asset management fees charged to clients who use IG’s ready-made portfolios. I really think this has a lot of potential!

Outlook

With the sustained higher levels of volatility in the financial markets in FY21, IG’s active client base is now at record levels and is materially larger than in the prior year period, with trading behaviours and levels of retention comparable to historical averages. 

tastytrade

Trading has been very strong, with the tastyworks brokerage business accelerating its rate of active account growth in 2021 and reporting a 100% increase in the number of active trading accounts during the month of February 2021 versus the prior year period.

This deal is anticipated to close in Q1 of FY 2022.

My view

Another amazing update and I’m glad I stayed around. I haven’t sold my IGG shares yet and it’s hard to sell them when things are going so well. I’ll be watching the progress at tastytrade with great interest – I’m still a little concerned about the longevity here.

 


Burberry

  • Stock data should display here.
Market cap £8.6 billion
RNS Trading Update
Writer disclosure Long BRBY

Another nice update from one of my large companies this week. I can’t complain about my luck lately!

It’s only a few sentences:

Since December, we have continued to see a strong rebound and now expect revenue and adjusted operating profit to be ahead of consensus expectations. Comparable store retail sales in Q4 FY2021 are expected to be in the range of +28% to +32% higher than the same period last year.

For the full year, we expect group revenue to decline by -10% to ‑11% and the adjusted operating margin to be in the range of 15.5% to 16.5%.

Not much I can say about this except that I’m breathing a big sigh of relief.

The past year has been a tough one. The Covid situation saw the Burberry share price more than halve in the opening months of 2020. But we are now back at the sort of high valuation which I think that this business, when it’s performing well, deserves.

I’m likely to keep holding this until it gets acquired by a larger luxury group.

 


That’s it for my roundup. See you soon!

Graham

 

PS: As always, I appreciate your “thumbs up”! Thank you.

 

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