Cube UK Report (20 Jan 2021) – Trump’s last day in charge

Cube UK Report (20 Jan 2021) – Trump’s last day in charge

Good morning!

There’s lots to look at today, and this list will evolve:

  • Burberry
  • WH Smith
  • IQE
  • CMC Markets
  • JD Wetherspoon
  • Hornby
  • Air Partner

It’s President Trump’s last day in office – he’ll be back in Mar-a-Lago before his term expires, skipping the inauguration of Joe Biden.



  • Stock data should display here.
Market cap £7.4 billion
RNS 3rd Quarter Trading Update
Writer disclosure Long BRBY.

This was mentioned in my year-in-review article, published yesterday afternoon.

Today’s update is quietly reassuring, but with caution for obvious reasons:

  • strong increase in full-price sales
  • short-term outlook remains uncertain due to Covid-19

The cost of reducing markdown (to achieve more full-price sales) and Covid closures was a 9% decline in comparable store sales.

Remember that Burberry’s customers are often tourists (e.g. in London or Singapore) – the company needs tourism to come back, to access customers in the way that it used to.

The breakdown in comparable store sales is as follows:

  • Asia Pacific +11% (strong in Mainland China and Korea)
  • EMEIA (Europe, Middle East, India and Africa) minus 37%
  • Americas minus 8%

EMEIA appears to be the only region where lockdowns are hurting very badly. In the Americas, for example, Burberry cites reduced markdown activities as the reason for the decline in sales – not store closures.

Thankfully, the online channel appears to be working well:

  • digital full-price sales growth over 50% with Mainland China in triple digits

The growth in Mainland China, both in comparable store sales and in digital growth, suggests that would-be tourists are maintaining a strong relationship with the company. Excellent!



“…we expect continued progress on our strategic objectives in Q4 FY2021. Gross margins will benefit from full price, regional, and channel mix changes as well as lower stock provisions. Inventory and cost management plans remain on track. Whilst Q4 FY2021 headwinds persist from store closures, the performance of Q2/Q3 FY2021, driven by product and digital capabilities, reinforces confidence in our prospects.”

My view

Some things I’m happy about:

  • the strategy to reduce markdown sales, in order to protect the reputation of the brand. The brand is the key asset here, and positioning it firmly in “luxury” is the best way to protect it.
  • The company’s enormous expense budget is still being trimmed, and “cost savings are in line with plan”.

Things I’m worried about:

  • There is a small dark cloud in the form of VAT refunds for non-EU tourists in mainland Europe come to an end. Hopefully this can be mitigated.
  • 15% of stores are currently closed, and 36% are on reduced hours. I’m fearful that physical stores will continue to struggle, but hopeful that digital sales can continue to shine.

Overall, I’m happy to continue holding this one.

The market agrees with my overall positive assessment of this RNS, pushing the shares up 5% in early trading.

Net income of £300 million+ should hopefully be achieved again, before too long, which would make the current valuation appear reasonable.


WH Smith

  • Stock data should display here.
Market cap £2.2 billion
RNS Trading Update
Writer disclosure No position.

This is an update for the 20-week period which ended on Saturday. This company’s financial year runs from September to August.

I’m not expecting much from WH Smith, seeing as airports are mostly empty right now, and the High Street is moribund.

It turns out that Christmas trading was better than anticipated.

  • High Street sales at 92% of 2019 levels (sounds a lot better than saying sales were down 8%!).
  • Travel sales at 36% of 2019 levels (i.e. down 64%).
  • Total revenue at 59% of 2019 levels (down 41%).

The cash position ended up “materially ahead of our original plan“, cash on deposit at the end of December being £90 million. £70 million was owed in rents and other debts, but there was £320 million in committed facilities, i.e. lots of liquidity.

As an aside, this is something I’ve admired about SMWH for years: strong cash generation. It sounds obvious, since its customers pay in cash, but it’s worth mentioning that the company has always been good on this front.

On a negative note, I see that the monthly trend is actually one of gradual deterioration, apart from the glimmer of hope in December’s High Street performance. January’s performance so far is particularly bad:

It’s impossible to know what the performance would have been without the recent national lockdown – perhaps January would have been relatively ok? Note that WH Smith is a mostly essential retailer and most of its stores remain open, albeit with restrictions and some sections being closed off.

Cash burn is running at £15-20 million per month, assuming current conditions continue.

My view – I like this company and would consider owning shares in it, at the right price.

And I note with interest the encouraging post-Covid signs of recovery at its American operations. Could be worth looking into.



  • Stock data should display here.
Market cap £627 million
RNS FY 2020 Trading Update
Writer disclosure No position.

Let’s check in with this maker of semiconductor wafers.

Revenue for FY 2020 will be c. £178 million (2019: £140 million).

Net cash nudges into positive territory by year-end at £2 million, versus net debt of £16 million a year ago.

Bear talking points

One of the key elements of the bear view on this stock (which I have shared) has been that IQE can’t generate free cash flow, due to excessive capex.

It says today that the cash generation in 2020 has been due to “strong trading performance, continued reduction in capital investment and focus on cash management“.

This is speaking directly to the argument that capex at this company is simply too high.

If the company does indeed become a cash generator from now on, thanks to all the capex it has made over the years, then I will be happy to turn more positive on it. For quite some time, I have been sceptical that its cash generation would ever really flow through to shareholders.

Many hedge funds felt the same way. And they doubted it for other reasons, too. Disclosed short interest reached 12% at the peak:

Since then, the share price has collapsed from around 160p-170p to a low of 20p during the Covid crash, and then back to the current 78p.

At the current level, my instincts still tell me that it is overvalued, but I don’t find it to be a very compelling short. So I agree with the hedge funds who have covered their positions (Ennismore are still hanging around).


CMC Markets

  • Stock data should display here.
Market cap £1,230 million
RNS 3rd Quarter Trading Update
Writer disclosure No position in CMCX. Long IGG.

I maintain a key interest in the spreadbet/CFD sector.

There are some signs of a slight dampening in activity. To be expected, as the bumper conditions associated with Covid could hardly last forever:

In Q3 2021, the entire business has continued to perform very well, with high active client numbers resulting in strong client trading activity, although at lower levels than earlier in the financial year.

And the wondrous new risk management techniques which have turbo-charged CMC’s profits aren’t working quite as well as they did before:

In addition, client income retention remained well in excess of 80%, but below the levels reported for H1 2021, as guided.

They report “no outages” in November, during the period of vaccine news – good to hear. I wish all spread bet companies could achieve no outages permanently!


Following the continued strong performance, the Board is confident that net operating income for the Full Year 2021 will be at the upper end of the current market consensus1.

The company-compiled analyst consensus is for net operating income of £370 million – £387.5 million, and PBT of £191.3 million – £206.3 million.

My view

I’m a fan of this company, and briefly held shares in it (wish I held on to them!).

I see that CEO Peter Cruddas is talking about “a healthy pipeline of projects that will drive new revenue streams”.

Given that pipeline, and the (in my view) long-term favourable prospects for the industry, the P/E here looks rather miserable, doesn’t it? Maybe around 7-8x?

The problem for me is that I still find CMC’s new risk management techniques rather mysterious. So I prefer to hold IGG, who I believe to be hedging in a more straightforward manner.


JD Wetherspoon

Results of the placing – completes a placing to raise £93.7 million at 1120p.

The company announced yesterday that it was looking to raise these funds.

I think shareholders have done quite well, given the truly terrible situation that pubs are in. They suffered some dilution in April 2020, and more dilution today, but it could have been much worse.



  • Stock data should display here.
Market cap £108 million
RNS Trading Statement
Writer disclosure No position.

Sales of toy trains were good in Q3 (Oct-Dec) – ahead of the prior year.

Things were a bit more complicated in January:

January to date has been a slower start that we would have liked as we contend with tighter COVID-19 restrictions within the warehouse and the impact of courier companies pausing collections bound for Europe due to Brexit backlogs. We have now largely worked through these issues and will start shipping to Europe imminently.

The company says it has “coped” with Covid-19, but will be in a much better position again, when the situation has passed.

Net cash is £3.8 million (versus net debt £9.9 million a year ago).


We currently expect to finish the year with sales 15-20% ahead of the prior year subject to the warehouse still being able to operate fully with new COVID restrictions in place. 

My view

I’ve been aware of this company but never followed it closely, and am dismayed to see the rising share count and consistent losses of recent years.

In H1, it did manage to eke out a tiny profit, with the CEO saying at the time:

Hornby has moved into profitability, the growing sales and margins built on the back of the introduction of some fantastic new products, new technology and the changing environment.

Are any readers backing this one?


Air Partner

Trading Update – very nice announcement:

At the time of the half year results, published on 30 September 2020, the Board reported that it expected modest profits in the second half of the year. However, despite global travel restrictions, the Group has performed better than expected and ahead of market expectations. Accordingly, the Board now expects to announce an underlying profit before tax of no less than £11.5 million for the full year

This is a significant beat, and the underlying profitability makes even the new market cap (£46 million) look very small. Another one that could be worth researching in detail.



Wrapping up the article there, cheers!


PS: Don’t forget to read my year-in-review article, available here for Gold Members!



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