Fundamentally Furloughed

@jcksmith850 I would LOVE to see what your analytics of Live Nation would show. The stock seems to be picking up interest from investors after Saudi Arabia’s Public Investment Fund brought a $500 million stake in the company a few weeks ago

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Awesome I’d love to add more stuff since I have time on my hands - where do I go to the code for the Sheet Finki?

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:rofl: This happened to me once but I got it all back!

Horde FTW!

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head on over to finki.io/finkiAPI.html , email for an API key … follow the quick demos on site or see how some other folk integrate it into their G Sheets tracker… for example, Sean’s videos here >>>>

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I’ve got a company I’m looking at over lunch but this does seem interesting. They have lost a lot of value and seem extremely sensitive to COVID-19. However the analysts do like the looks of it.


Source Yahoo Finance Analysis

Might be worth revisiting tomorrow or another day for a deep dive but long term it looks a strong pick. The short term financials are very scary though. They made a loss in Q1, and the expectation is a very heavy lose in Q2 and potentially Q3 depending what happens. Highly sensitive to the lockdown.

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Halfords - HFD (Buy)

Thanks to @jazzersi for the suggestion.

I have to say reading through the investor documents and website, Halfords is very transparent. I was surprised how open they are with investors about potential issues, actions they are taking, and the financial impact. Which might sound expected, but some of the companies I’ve looked at don’t make it easy.

With the 2020 results coming out 7th July, and the last trading notice published 6th May, there is unlikely to be any new announcements. We have some insight into the business during COVID-19 as well as how their plan is going. Let’s ride on down to analysis town.

What Does Halford’s Do?

Most of us would remember going down to Halford’s to pick up some car oil, new car mats, or even getting our first bike. What are they doing now though, and have they adapted over the years?


Source: Halford’s 2019 Annual Report

Halfords is the UK’s leading provider of motoring and cycling services and products. With 446 Halfords stores, 4 Performance Cycling stores (trading as Tredz and Giant), 371 garages (trading as Halfords Autocentres and McConechy’s) and access to 77 mobile service vans (trading as Halfords Mobile Expert.) Their business is split across vehicle parts, vehicle servicing, and performance cycling (we’ll touch on their regular cycling business too.)

halford car parts
Source: Halford’s Market Breakdown

The car parts aspect of the business is for DIYers who want to pick up individual parts and tools to help them service their cars and vehicles. These day’s Halford’s have their brand in-store and online (rather than just selling other manufacturers goods), but this isn’t a focus for the business going forward. The longer-term view is owners will not be able to keep up with more complex modern cars and to focus on their servicing solutions rather than selling products and parts. Expect your traditional large Halford’s stores to be refurbished or closed down.

halford car service
Source: Halford’s Market Breakdown

The car servicing business is all about their garages, mobile fleets, and general “do-it-for-me” services they can offer for your vehicles. Modern cars need to be serviced less, and on the whole are more reliable. However, the cost per service is increasing. The added complexity and increased integrated technology mean more specialism is required. Excellent news for servicing providers like Halford’s, terrible for anyone who wants to change a headlight.


Source: Halford’s Market Breakdown, left is regular cycling, right is performance cycling

The cycling business is slightly different as this graphic is now out of date.

Halford’s had its mainstream cycling focus with the Cycle Republic brand. 16th March Halford’s confirmed they would be closing the Cycle Republic brand. They want to focus on the online brand Tredz and zero in on the performance cycling industry, think e-bikes and high-end luxury branded bikes. The Cycle Republic made an of loss of £4.3m last year and is expected to post a loss this year too. 6th of March it was confirmed that 11 Cycle Republic stores would transfer to Pure Scooters Limited, though finer details of the deal are not currently known.

Cycle-to-Work vouchers are a big driver for Halford’s and servicing new electric-assisted pushbikes is a growing market. Likewise, with cars, more complex and expensive vehicles are translating into higher service costs which require specialist skills.


Source: Halford’s 2019 Revenue Split

What About COVID-19?

I’m sure you have seen the queues outside Halford’s and the influx of cyclists around the country. Has this influx of discovering and fixing your bike and doing some work on your car, translated into more sales for Halford’s or has the increase not offset the losses of lower car service requests?

25th March and 6th May we had some updates relating to COVID-19. Starting with the first update we saw some tactical decisions being made. As you would expect the first action was to bolster the company’s cash position. They drew down on the revolving credit facility in full giving them approximately £118m of cash on deposit, plus roughly £20m of an overdraft if required. Critically they suspended their dividend, resulting in a cash saving of approximately £24m for 2021. Halford’s has offered an increasing dividend, which makes it an attractive investment, which many will be keen to see returned. Additionally as one of Halford’s biggest expenses is the physical stores which also hold stock (fun fact, 85%~ of online order are click-and-collect!) they have applied for business rate relief for the whole of 2021, this translates to a cool £26m per year saving.

All in all, we saw a lot of financial bracing for the unknown. We can compare this with the trading update on the 6th of May to see some more clarity in the business changes.

They have been able to keep open 325 retail stores, 346 garages, and 77 mobile service vans. Which results in the coming financial results looking better than expected in terms of sales. The expectation is Adjusted Profit Before Tax will be at the upper end of their targetted £50-55m range. Sales during lockdown were 23% below last year on a like-for-like basis, which is better than they initially expected. They did see strong performance in cycling and motoring essentials, but generally, they have felt the pressure of lockdown still. We also saw an update on their cash, with Halford’s having approximately £159m liquidity available, an increase from £138m (£118m cash + £20m overdraft) a month and a half ago.

While they have been harmed by COVID-19, we have seen some robust measures put in place and seen an appropriate response from the business.

What About The Financials?


Source: Genuine Impact

We are looking at a business which is competent in terms of their quality, with revenues of £1.12bn and a profit margin of 3.68%. Historically they have offered a strong dividend offering 11.22% yield, however, we know the next one has been cancelled.


Source: Yahoo Finance

With the value, we know the business has been heavily discounted, but understandably so. Keep in mind a lot of the value ratios are based off official figures, and we haven’t seen updated COVID-19 impacted numbers. This does mean the cheap value score should be taken with a pinch of salt. Remember the majority of revenue comes from the car arm of the business, and that is feeling the pressure the most right now. While 2020 profits are on track, it’s the 2021 numbers which will feature the true impact of COVID-19.


Source: Genuine Impact

In terms of sell-side analysts, we are seeing a heavy leaning towards a buy rating. While the future revenue and earnings are weaker than the rest of the market, they have a high sentiment from analysts.

Now I’ve looked into this a bit more as there seems to be some different data depending on who you ask.

halford yahoo
Source: Yahoo Finance Analysts

Here we see more of a hold position (still a few strong buys) but you also see a high target price. With even the lower estimates being higher than the current price. The target prices are generally set to be achieved within the next 12 months.


Source: Genuine Impact

We see a high target price rank here as well, though not quite the rank I would expect for an almost 100% increase in target price.


Source: Market Beat Target Price

Looking at market beat we see a very different set of analysts views and target prices again.

Seems data for the analysts is a bit spotter than you would hope for. Sadly with a lot of US-focused research tools out there, this happens more than I would like.

Why A Buy?

Looking at the data there is something which stood out to me. While some of the target price estimates look tasty, the different data points raise a lot of questions.

For me this is a strong long term buy because of the strength of the management team. I like their approach during COVID-19, they have closed down one of the brands to keep the business-focused, and they are zeroing in on the brand they want to be tomorrow.

The 2018 investor day presentation gives a lot of insight into the business and how they see it transforming. Released in September 2018 it gives you a real flavour of what they hope to achieve, and it’s interesting to compare the vision from then to now.

This details their transition into a do-it-for-me service provider who offers a very select and focused range of products. They have actively gone out to research why people don’t shop at Halford’s and what don’t they like. Looking back at 2018 they had 6 vans doing at home and work car services. During the lockdown, we have 77 of these vans is operation.

They highlighted the growth of the cycle industry but also the fact 10% of cycle shops close each year, and the majority are independents, they are now focusing on their digital experience and leveraging their “service” buildings rather than expanding the underperforming retail outlets. We are seeing more synergies, more personalisation, and a lot more future positioning for a world where Halford’s doesn’t think your kids will be drivers or car owners.

These are bold bets, backed by data. This is the kind of turn around strategy and focus I like to see.

I feel like there is a lot to like about Halfords, but in the short term, I would expect some pain. 2021 will show the full impact of COVID-19 so expect some corrections and volatility in the current year.

Looking ahead they are positioning themselves for an increased dividend and strong future growth. The lower 2021 figures are expected, while not detailed as guidance hasn’t been provided, we know this is on the cards. I see a brighter future for a new digitally focused service orientated Halfords, and now is a cheaper price to buy into that future.

Hope you liked the write-up if you think I’ve missed anything please do let me know! I love to hear your thoughts and feedback.

Thanks for reading and stay safe.

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This is cracking as ever - thanks for this. I took a small position in Halfords a few days ago (seemingly at the peak of their recent price increase :man_facepalming:) but happily your longer term analysis and like of the management style matches up with mine.

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It’s longer term play for sure, it really does come down to the change in business focus over the long term.

They are a fairly simple business which is actually great. It’s really easy for them to control their spending and know where stuff is going. The year ahead it looks like steady share price increase and a return to dividend late 2021 or start of 2022.

A nice value buy for a 5-10 year horizon.

Great suggestion by the way! I’ve never looked at these guys before (didn’t even know they were listed!) and I was surprised at the level of transparency about their business and positioning. Gives me a lot of confidence for the future.

Yeah - in a way they are a fairly old fashioned business in a nice straightforward way. I have a vested interest as I have chosed HFD as my stock in the prediction league Stock Prediction League - June 2020 🔮 - my first few choices had already been taken :sweat_smile: :bike:

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Love the notes:
“Need to sell, just get rid of it.”

Priceless :heart:

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Did you know that the only Woodford fund that survived (now rebranded as Schroders UK Public Private Trust) is the one that was structured as an investment trust?

Illiquid private shares are less of an issue if you aren’t forced to change opinion based on cash inflows into a fund

That being said the returns on said rebranded trust are dire. I guess the key question is do you still trust the management to make good decisions even if the percentage assets in private companies is higher?

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Interesting!

I didn’t know the investment trust was that one that survived. You are right it makes sense, you aren’t investing into the pool of funds.

My worry is they go too far with private unlisted/unquotes equities in the search for high return. All it takes is for a situation like the one we are in for all these high cash burn firms to struggle and need follow on rounds (Monzo’s 40% down round was a shocker to me!) They haven’t really repriced their unquoted equities and I’m guessing they want to hold off for as long as possible too!

I’m happy with it for now but I’ll be watching their private investments with a more critical eye going forward.

Sometimes you need to be honest with yourself :rofl:

I like to have a little of my portfolio for making risky very short term bets. It keeps my portfolio exciting without hurting the overall too much, and it means I’m less likely to do something impulsive with my bigger more reliable picks.

That said, Beyond Meat needs to go. I’ve made my mistake, no point waiting for a slow and painful recovery and telling all my friends to buy Beyond Meat burgers when we go out. Better off moving that money into something which is making a return and hope to recover the money that way.

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Future - FUTR (Buy)

Thank you @jwt for the suggestion to dive into (the) Future!

With just two days until the 2020 interim results announcement, now is a tricky time to make any predictions about the stock. With no COVID-19 guidance been given, a chain of acquisitions in March and April, and an aggressive selloff at the start of March, there are a lot of unknowns we have to make a best guess on.

You might not know the name Future Plc, the FTSE 250 listed firm, but you will know their brands.

What Does Future Do?

Future is a true multi-platform company. Magazines, websites, video content, and event live events. They are behind many of the brands you will recognise across technology, gaming & entertainment, music, creative & photography, home interest, education and television. Targetting both end consumers like us, as well as dedicated B2B industry offerings. Think a media company that loves technology.


Source: Future Our Business Model

Broadly speaking the company breaks down its business lines into two main segments. Media, which is their digital efforts and Magazine, which covers everything relating to print. A point to remember, media contains pretty much everything non-magazine for the ease of reporting.


Source: Future 2019 Full Year Results

The growing media efforts and B2B services now mean 54% of the revenue comes from the US, with the rest mostly coming from the UK. This means currency fluctuations will impact their earnings (strong dollar means weaker pound revenue.)

The reason I bring up technology earlier, the underlying platforms which powers many of their forums, sites, and advertising solutions is all inhouse managed and developed. This gives them the ability to scale their brands, and easily acquire and merge in competitors.

With their vast knowledge of managing successful brands, they also offer consultancy and other B2B support packages, but this is dwarfed by their advertising and e-commerce revenue streams.


Source: Future Investor Day 2020

One aspect which is interesting, and unique to digital content is the long tail of the pieces they produce and the affiliate deals they create.


Source: Future Investor Day 2020

Content created back in 2017 still attracts traffic and drive revenue even now. This creates a fantastic feedback loop with their digital channels.

A large part of the strategy is finding gaps in their offering, and acquiring competitors. Since April 2016 Future has completed over 10 acquisitions and spending over £171m. With a recent acquisition taking them in the video production and distribution space.

What About The Financials?

Traditional media has been under threat for some time, and an acquisition style of business can be expensive to maintain with the risk of expensive mistakes.


Source: Genuine Impact

You might be surprised at just how profitable Future is. However, you do need to look behind the numbers as they all tell a different story. A gross margin of 48% means they can bring in revenue at only half the cost. After the operating costs, this drops down to 13.6% operating profit which is a very impressive number to see. Finally, we look at the result and the final profit margin is a meek 3.7%. While they can generate a lot of revenue and covert that into profit, they are heavily reinvesting back into the business.

Additionally, this is a dividend-paying stock. The dividend is at the start of the year around January 16th, so we have completely missed it for this year. Don’t get too excited. The dividend yield is currently 0.11%, if you are looking to live off your investment dividends this won’t scratch that itch.


Source: Wallmine Future

The profit margin is consistent, they are a relatively low debt company considering their acquisition strategy, and they are easing their reliance on financing to support cash flow.

How Does The Value Looks?

After a nasty dip and some issues with short selling, Future is making a recovery back to the pre-COVID-19 dip.


Source: Yahoo Finance

We can see the price is struggling to keep any upward momentum and seems to have hit a ceiling recently. With the next update only two days away we are seeing the market protecting it’self from the unknown.

We haven’t had too much insight into the business over the last few months so confidence is knocked. That said, looking at the value metrics the company is priced about right.

Depending on your preferred ratios this is either overpriced compared to the price to book or extremely cheap versus book to share.

What Do The Sell-Side Analysts Think?

This is where analysing smaller companies can get tricky. I’ll spoil the punch line and let you know the analysts seem to love the future for Future. If you dig a little deeper, you’ll find only three or four analysts seem to be actively up to date and covering the stock, so we need to be a bit more careful with their views.


Source: Genuine Impact

The overwhelming buy rating is down to three analysts all having a buy prediction down. Depending on where you go for your data this number will be five to three. Three estimates seem to be up to date, and they are all buy’s but the target prices are very high.


Source: Genuine Impact

I had a deeper look into this and found two target price estimates both at 100%~ growth. While these feel like meaty estimates we can look at the numbers and try and backwards engineer what they are thinking.

If we look pre the price slash at the end of January after a short-seller attack, we were sitting at 1522p a share.

There was a month of recovery before COVID-19 changed the world as we know it. The analysts had set their original targets before the first dip, meaning the original change was 15-20% growth. As far as the business financials are concerned they have not changed.

Now COVID-19 has impacted the business, and we don’t know how badly. We know advertising budgets have been cut, at home spending has seen an increase, and online activity has jumped.

There is the potential that increased traffic has offset lower advertising budgets and potentially the lucrative affiliate e-commerce sales would have been boosted. Sadly with no new information, it’s pure speculation. We have to wait two days before we know for sure.

So Why A Buy?

I’ll admit, a buy rating this close to an announcement is more gambling talk than fundamentals. Even with an impacted business, this is still a cheaper business than it should be, we can see this looking back to the start of the year.

There is room for recovery and the market is padding in some extra protection against some unknown results. We could see a dip, like many, have experienced, where they have been hit by the economic slowdown. We know advertising is down and that is the main revenue driver. We also know activity is up for online forums and digital engagement, which Future also profits from.

It comes down to how much the advertising business has been affected. Events are off the table, TV and video production would have slowed, but online engagement should have skyrocketed. With no additional guidance, we are in the dark. I do think we’ll see the trading volume spike once some clarity (in either direction) is finally given.

Let’s hope it’s a return to their strong share price before, Back to The Future if you will.

I hope you enjoyed my write up and views. Please let me know what you thought, all feedback helps! Did I miss anything? Any aspects you wanted to be covered in more detail?

Thanks and stay safe.

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Got a spicy one for you: Illumina and the wonderful world of biotech :upside_down_face:

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Wow, I was just doing some reading and that is a lot of lawsuits :smile:

Still it would be interesting to write about. I haven’t really looked at biotech, and right now the sector is a buzz with activity the whole pharma sector in general is lively.

I’ll do some more digging but this could be a fun one to look at. Plus it’s good to look at different sectors. Does mean I need to figure out what a DNA sequencing machine is and why it’s important :thinking:

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Illumina - ILMN (Buy)

Thank you @SpyrosL or the suggestion.

I don’t usually look at pharmaceutical or health-care related securities, much less now during COVID-19. But the CFO selling $461,380 worth of their stocks, and the fact the insider trading has been exclusively selling for the past two years, and the annual shareholder meeting six days away, this piqued my interest.

What Does Illumina Do?

They see themselves as a global leader in genomics, their business is offering the machines, equipment, and technology required in genome mapping and analysing.

A look at a selection of clients helps to explain the depth and range of what they offer.

illumina customers
Source: Illumina Source Book

Their business is broken into two revenue-generating halves (plus an investment side which is more R&D strictly speaking.)

illumina revenue
Source: Illumina Source Book

Sequencing relates to their larger machines, technology, and the consumable products linked to them. These are the machines used when performing detailed analysis and research. For instance, the first sequencing of COVID-19 was done on an Illumina machine. They currently offer a range of machines from just under $1m to $20k. Approved for use by different regulators (from food testing to patient testing) and with a range of prices, this is the main revenue driver for the business.

Microarrays are for more broad testing. Think of testing kits, cheaper to produce, singular focus, and mass-produced. While a smaller part of the revenue comes from this section, it’s more reliable revenue, you aren’t having to sell and install large machines to a more select range of skilled customers. An example where this is being used is non-invasive prenatal testing (NIPT), a blood test to check for any known genetic challenges for pregnant women. In the US, 97% of high-risk pregnancies and 56% of average-risk pregnancies will reimburse NIPT. In the EU, the Netherlands and Belgium cover NIPT for all pregnancies. Currently due to COVID-19, in Aetna, all pregnancies are receiving free NIPT.

illumina earnings
Source: Illumina Q1 2020 Summary

Illumina does their manufacturing (though some of the microarrays are outsourced) and also offers laboratory services, these items show up in the services and other section of their income reports, but they make up a smaller chunk of profits compared to the main sequencing machine production and sales.

illumina investments
Source: Illumina Source Book

Innovation is critical in IP heavy industries. This means Illumina has to invest into a range of startups and related companies, to keep its competitive edge and also to take advantage of any new advancements made in their field. As such Illumina does have a flow of credit it uses to help fund its investments and keep cash flow predictable. It’s very common for pharmaceutical companies to have a large portfolio of investments.

How Has COVID-19 Changed The Business?

While it was an Illumina machine in China which was used to first sequence COVID-19, and their machines are used by clients to test their patients, the outbreak has created a slowdown.

Like many companies, they have also withdrawn their fiscal 2020 full-year revenue and earnings per share guidance due to the pandemic. Which a poor previous report this has also shaken investor confidence.

We did get some insight some the prepared statements announced on the 30th of April.

The prediction by Illumina is the second quarter impact will be substantially greater than the impact we experienced in the first quarter. The expectation is for revenue to decline sequentially in every region in the second quarter, with the smallest dollar decline expected in China, and the largest in AMR.


Source: Illumina Q1 2020 Summary

The issue Illumina face is their sequencing machines are great for vaccine research and understanding COVID-19, but labs are not buying the machines in the immediate face of the pandemic, as there are more pressing issues to resolve.

As such we can expect a slowdown of the biggest revenue driver for the business. The products have made a recovery as labs reopen and people refocus on COVID-19, which Illumina has shifted their focus as well to maximise their usefulness to clients.

The business has been impacted negatively overall by over $20 million in the first quarter, which did get slightly offset by a small contribution from COVID‐19 related stocking, and sequencing consumables and services.

They have also pledged $10m in different forms of aid related to COVID-19, with an annual of $3.5bn and an annual income of $942m I wouldn’t worry about them being overly charitable and eating into profits.

We also see they have drawn down on some debt, like many companies they have reacted by protecting their cash flow and drawing any debt they can before encountering any financing issues (or higher rates if they waited.)

How Are Illumina’s Fundamentals?


Source: Genuine Impact

Illumina is a very high-quality investment. With a profit margin of 28.3%, this is a very attractive investment. 16.7% return on invested capital through a mix of share buybacks and some new issues, and a very comfortable cash position, the only downside is the lack of a dividend.

illumina cash
Source: Wallmine

In terms of consistency, they also perform very well. They have demonstrated they have a very defensible business.

illumina 6 month
Source: Yahoo Finance

In terms of share price and value, they have struggled during the year but overall they have returned to form after a rocky start.

Currently, they are overvalued by most metrics. P/E of 54.84, Price/Sales of 14.79, and even a Price/Book of 11.40. If you are a fan of Buffett’s teachings you would put this on a watch list and not touch it right now.

I mentioned the insider trading activity.

illumina insider
Source: MarketBeat

We have seen a lot of selling activity by executives but this hasn’t spooked investors.

Illumina has a strong rating when it comes to sell-side analysts.

Screenshot_20200521-152717
Source: Genuine Impact

While a slightly mixed back of growing hold positions and a few sell ratings, sell-side see a bright future even at this overpriced valuation.

Digging into this a little more you might be surprised to find that the target price is negative.

The issue is, many of the price estimates have already been hit. At the start of the month, four of five analysts increased their target price, and one decreased it (still higher than the current price) however the recovery has been much quicker than expected.

In Summary - Is It A Buy or Hold?

The price has recovered far faster than the analysts expected, which is great to see for existing investors but creates a problem for anyone looking to buy this stock right now.

It’s an expensive pick but this is a defensible strong company. If you are looking for a solid 5-10 year pick and a company which will benefit from reinvestment into pandemic prevention after COVID-19 this is an interesting pick where they have a strong portfolio and balance sheet, to begin with.

If you are looking for a shorter-term, one-year turnaround I would avoid this company. We know they will have a troubled Q2 and they are not benefiting from COVID-19. They aren’t working on a vaccine and do not influence that side of the fence. Anyone who is researching a vaccine has the machines they need or will use leverage other labs with the skills and equipment required. There is a chance they will find a new short term solution which benefits from the current pandemic but that is a bigger gamble than trying to predict who will mass-produce a vaccine first.

This is an excellent high-quality purchase as a long term investment, it’s overpriced so anyone looking to derisk or seeking shorter-term gains are better off waiting or looking elsewhere. If you are looking for quality purchase then this should be interesting for you.

Thanks for taking the time to read this, and let me know what you think!

Will you be buying in at a high valuation, or waiting for another dip? I wonder how the annual meeting will go in six days, that might shake the price up a bit more.

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Thanks so much for this, genuinely look forward every time I see a load of notifications on this thread.

I think Unite Students (student accommodation) could be an interesting one

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Thanks for the lovely comment!

My girlfriend is back to work so I have some free time again. Unite Students might be an interesting one, property and rental is struggling right now so that might have an interesting discount.

I’ll have a look through the news and the other suggestions and see what is the most appealing!

Thank you everyone for your great support! My girlfriend was pretty upset I told her I missed writing analysis during our day in the park.

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Hello Jack,

Keep up the excellent work your doing.

Can you please have a look at Home Depot when you have time.

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