Cube UK Report (19 Jan 2021) – Superdry stares down the barrel

Cube UK Report (19 Jan 2021) – Superdry stares down the barrel

Good morning!

There’s a vast number of updates today. I’ll cover as many of the interesting ones over the next couple of hours (interesting to me, at least – hopefully to you, too!).

For starters:

  • 888
  • Experian
  • Hotel Chocolat
  • Superdry
  • AO World
  • Mountfield


AO Extends Strategic Partnership

(Writer Disclosure: Long 888)

A nice little contract update from one of my holdings, regarding its relationship with Caesars Interactive Entertainment (“CIE”) in the US:

888 will continue to provide its turnkey poker platform and services to CIE in the U.S. including bringing the WSOP’s online poker rooms to players’ mobiles and desktops…

The partnership will also see 888 continue to power the U.S. market’s only interstate shared player liquidity poker network across the states of New Jersey, Delaware and Nevada, connecting an increasing number of poker players to enhance the availability of poker games and formats for its customers. 

The shares are up 1% this morning. I’m pleased to see the turnaround in 888, especially in its poker segment – poker revenue was up 56% in H1 last year, and monthly revenue and active customer numbers reached new all-time highs in December. Happy to continue holding this one for now.



Market cap £24.8 billion
RNS Trading Update, third quarter
Writer disclosure No position.

Q3 performance was “better than expected“, with organic revenue of 7% at constant FX (total revenue growth 10% at constant FX).

Some pretty wild currency swings involved here – see the difference between the first and second columns, particularly in Latin America:











The performance in North America is hard to fault. It included a contribution from new acquisition Tapad.

Latin American performance sounds excellent, if you are only willing to look past the currency problem. I’ve just checked how the Brazilian Real did against the US dollar in 2020: it appears to have depreciated by around 22%. I’m not sure if there’s much Experian can and should be doing about that.

UK/Ireland are flat, while EMEA/Asia is in organic decline. The overall revenue performance was helped by the acquisition of Arvato.


We expect that organic revenue growth for Q4 FY21 will be in the range of 3-5%, against a strong prior year comparative as we lap last year’s mortgage uplift. For the full year ending 31 March 2021 we expect Benchmark EBIT in the range of US$1,360 – 1,380m.

My view

This is a super company, in my view, even if growth has slowed.

The problem is: how much to pay for it today, given the slow growth trajectory.

What it calls “Benchmark EBIT” was $1311 million in 2019, and $1387 million in 2020. Organic revenue growth of 3%-5% is fine, but unlikely to set the stage for explosive profit growth in years ahead.

Therefore, much as I admire Experian, I’m not a buyer at today’s valuation (P/E of c. 36x).


Hotel Chocolat

Market cap £474 million
RNS Trading Update
Writer disclosure No position.

Are people eating more chocolate in response to the depressing macro situation? And the lack of alternatives to spend your disposable income on?

  • Total Group revenue for the 13-week period increased 19 per cent compared to the prior year.
  • Total Group revenue for the 26-week period increased 11 per cent compared to the prior year.

It turns out that the “omni-channel” (puke!) business model has really helped the company:

In the UK, the Hotel Chocolat brand flexed its multichannel model to respond to the strong demand from its loyal, direct customer base. Online growth more than offset the impact of the temporary closures of physical retail due to COVID restrictions.

Good growth in the US also deserves a mention. And trading since December is in line with expectations.

Excerpt from the CEO comment:

Whilst there is still further near-term pandemic-related uncertainty, and ongoing increased costs in reacting to it, I am increasingly confident that in the medium-term we can deliver significant further growth in the UK, USA and Japan.

My view

A nice business, perhaps I should be studying it more closely?

Unfortunately, earnings are expected to only reach c. £16 million by FY June 2023, according to analyst forecasts. Not much compared to the half-a-billion valuation.



Market cap £178 million
RNS Half-year Report
Writer disclosure No position.

How the mighty have fallen! I feel fortunate to have resisted the urge to buy this over the past few years – I could easily have been tempted.

It’s true that you’d have done very well if you had bought in mid-March 2020. But that’s true of many stocks. The overall picture here has been one of serious decline.

And that’s despite the return of Julian Dunkerton, the genius who realised that you could draw Japanese-looking squiggles on clothes and sell them at high prices, to people who couldn’t read them.

The financial highlights are as follows:

As you can see: revenues are down and gross margin is down – not great, especially considering that there was underlying loss last year, too. So the road back to profitability appears to be a long one.

The statutory loss is material at £18.9 million.

The only bright spot is net cash at £34 million, with a big boost from inventory reduction (down £26.5 million). The company says that this reduction is sustainable – impressive.

The other major contributor to the cash position is £30 million of rent deferrals.

My concern on that front is that they have merely been deferred – they still have to be dealt with, at some point. What incentives do landlords have, to let the equity holders get off lightly?

If you imagine the company paying out the owed sums to landlords, it obliterates the October net cash position.

As of January, the net cash position is £54.8 million, giving it a little more wiggle room. There’s also £70 million undrawn in an asset-backed lending facility.


Let’s skip down to the outlook:

…we recognise the material uncertainty noted in our going concern assessment, and we are not providing formal guidance at this time for FY21 or beyond.

The company expects to remain in a net cash position for the rest of FY 2021, and the combined available liquidity is £130 million (net cash plus undrawn facility).

It will be another year of weak revenues, rent waivers, furlough support, and subdued e-commerce activity.

My view

As a rule, I don’t invest in companies where there’s a disclosure of material uncertainty around its ability to continue as a going concern.

From today’s footnotes:

The material uncertainty relates to:

the duration and impact of the second-wave of national lockdowns and subsequent recovery in consumer demand, and the Group’s ability to capture this in future trading; and,

• the ability of the Group to meet its covenants from debt providers

Superdry can no longer access credit on the basis of meeting profitability covenants, so it is reduced to using this “asset-backed” facility instead.

A difficult time for the company. Maybe your risk tolerance is higher than mine, and maybe it will pull through. But I’d rather be the company’s landlord or lender, rather than its equity holder.


AO World

Market cap £1,690 million
RNS Trading Statement
Writer disclosure No position.

I’ve long been a sceptic of this company.

The pandemic, however, has provided it with perfect conditions, and its share price has done amazingly well.

Today we learn:

The significant increase in demand for AO’s products and services since the start of the pandemic has continued throughout our third quarter as we experienced our strongest ever peak trading period over the Black Friday period and in the run up to Christmas.  In the three months to 31 December 2020 we recorded year on year UK revenue growth of 67.2% to £457.3m and of 77.4% to €73.6m in Germany1.

It’s not all plain sailing. There are “significantly higher costs” (due to Covid) and “a slightly increased rate of cancellation” by customers with respect to mobile phone and warranty contracts. There are also “Covid created imbalances in supply and demand in some categories”.

Founder/CEO John Roberts confirms that the business in Germany was profitable in Q3. Apart from that, this update offers few details in relation to profits and other quantifiable metrics.

I’ll remain a sceptic, despite the roaring share price. In my mind, it’s still focused on revenue rather than profits – and it will continue to find the latter much harder to generate than the former.



Trading Statement

This tiny company wins the prize for the most unhelpful RNS of the day.

Mountfield provides “construction support and property services” to the public and private sectors.

Covid has been a disaster for it, and:

…it is unclear what impact the pandemic will have on the longer-term demand for its services in connection with the construction of data centres and City office space, two areas that drove the substantial increase in the Group’s profitability in recent years.

What’s the solution? Something that will improve shareholder value, of course:

As a result of the difficult trading conditions and the uncertainty as to which areas of construction will be in demand following the pandemic, the Board is considering making structural changes to the Group to improve shareholder value.

Shareholders aren’t impressed by this mysterious plan, and the shares are down 17% this morning.

Hopefully they can tell us what the plan is, some day!


That will do for today, see you tomorrow!

Oh, and please give me a thumbs up, if you’re logged in – it’s great to know that you’ve read this!





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