Fundamentally Furloughed

I do like UK companies, plus I find it easier to talk about. Though I have a few US holdings as well so I can talk about them.

I’ve invested in some funds but I doubt they are that interesting to talk about.

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Thank you for posting your thoughts here. I really enjoyed reading and thought it furloughed really well too. I look forward to the next one!

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What are the axis in the graphs? It looks good, but what’s the ranking based on?
0.2% margin is disastrous.

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True I didn’t think of that!

The axis on the Genuine Impact graphs are it’s past rank. I should say the high and low for the past 12 days to make it clearer the scale.

Just gave it a quick check now.

Quality low: #2,445 - Quality high: #2,401
Value low: #231 - Value high: #172
Momentum low: #2,125 - Momentum high #1,510

Maybe I’ll leave those graphs out unless they are interesting. Takes up less room too.

The ranks are fundamentals turned into ratios and then compared against 5,528 other stocks to see the ratios in relative terms.

Rather than this companies profit margin is 0.2%, it’s ranked #3,261 out of 5,528. The raw numbers I find useful before jumping into a trade but I find it’s a nice summary, which in this case is simply they are pretty bad at turning a profit compared to the rest of the market you could invest in.

It really is. However, they scale allows them to keep running, and the low debt means they can leverage up when needed. If they can optimise their margins (which I think COVID-19 will help them achieve that) then there is a lot of profit to be made.

All of that aside they are a “distressed” asset, who desperately need a new owner to take it to the next level. It wouldn’t be a massively under valued company unless something was going wrong with it!

The market has priced in a lot of risk, without a buyer or a meaningful plan to increase the margins this will be a dud investment. That’s what I’m betting on in the short term. COVID-19 forces optimisations which remain after the lockdown ends, resulting in a new plan to increase profitability. Option two is a new buying appears, but I’m not sure who that would be right now.

Some info here on grocery market share
https://www.kantarworldpanel.com/grocery-market-share/great-britain/range

And thoughts from their interim results:

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BooHoo - BOO (Hold)

Fashion isn’t my past time. I am a man of function not form, which means I buy clothes rarely and somehow always get it wrong.

I wanted to look at a slightly different company and I wanted to look into new areas myself. BooHoo is an interesting online clothing retailer for the younger crowd. They are also riding the wave of fast fashion, cheap items with a high margin which isn’t built to last.


From TradingView

While they have faced the typically COVID-19 dip they have made a steady recovery. This has been driven by the fact BooHoo and its other brands (boohoo, boohooMAN, PrettyLittleThing, Nasty Gal, MissPap, Karen Millen, and coast) are all digital e-commerce stores. They have remained open through the lockdown.

https://www.cityam.com/uk-retail-sales-obliterated-in-fall-to-record-lows-over-coronavirus

On the surface, everything looks highly promising for BooHoo.


From Genuine Impact

The fundamentals are all extremely strong. One of the strongest quality companies, very high momentum, and extremely overpriced. Normally I would find this fairly attractive, but I have BooHoo down as a hold where I’m actively seeking an exit.

The profitability is extremely high, and this is no surprise. a 5.16% profit margin and low operating costs make this a robust business.

https://uk.finance.yahoo.com/quote/BOO.L/key-statistics?p=BOO.L

The debt is also very low, you’ll see this with a very strong financial strength. Looking at Yahoo we can see the hard numbers behind this, £20.92m of debt versus £245.45m of cash in the bank. Perfect for buying up competitors or building up a war chest for trying times (like right now.)

For all the profits, cash flow, and generally “rich” for BooHoo, they don’t like to pay it out to shareholders. This means as an investment it’s just the share price growth to look forward to.

In terms of value, BooHoo is extremely overvalued. It doesn’t matter what metric you are using here, price to sales, price to earnings or even price to book.

The bit I am most interested in is the future projections. BooHoo is a great momentum pick but I feel like there is more to uncover. Why are they building up cash, not paying it out to investors, no innovation other than a focus on new styles cheap and quick, and yet the future revenue and earnings seem strong?

A lot of analysts are on the side of picking up BooHoo, and it seems to hit their revenue and EPS targets are very achievable (plus the uptick in business due to COVID-19 closing down competitors.)

So why am I pessimistic?

Fast fashion is falling out of trend with its core audience. As laws changes and customers become more aware of the impact their purchases have on other lives and communities, then fast fashion will fall to up-cycling and “greenwashed” alternatives.

It also seems like the share price predictions are very low compared to the rest of the market.

With competitors coming back after the lockdown ends, a group made up of similar companies who are repeating the same strategy. The lack of diversity makes me concerned for their future.

In the short term, I’m sure they’ll continue to climb, but as a long term investment, I am not buying more and now considering when to exit.

As with any major decision I asked my girlfriend her view on BooHoo.

They are popular with the female 16-24 market, but it’s not an ethical company. Why and how are the clothes they make so cheap?

At least she’ll support my decision!

Let me know what you think of my write up, or what your view is on BooHoo.

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Sadly Sainsbury’s are under-performing, largely in part due to the discount retailers and largely due to Sainsbury’s being a costly supermarket to shop at, when compared against ASDA, Morrison’s and also Tesco. The closest supermarket to me is a Sainsbury’s but i’ll happily drive straight past and go to ASDA any-day of the week… and as long as that customer view point is in place they’ll continue to struggle.

Why should it be worth more? Its been under-performing for quite some now and those who are invested have clearly been making swift exists where they can… Will this continue? I expect so. if Sainsbury’s do not pull something out of the bag over the next 6 months? Perhaps taking advantage of the current situation with delieveries being hard to get hold of… perhaps getting in bed with Ocado ? or just improving their delivery service to squeeze in more deliveries than their direct competitors ?

For me; Sainsbury’s still represents a significant risk.

off-topic slightly… What will happen with ASDA? who knows… but if i were Walmart… i’d try to offload it and make a competitive effort to target Amazon… watch this space

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Some great insight and analysis here @jcksmith850, thank you for sharing :clap:

More of this sort of thing please!

Agreed they are in a very tough spot right now. This has been pushing down the share price because of the growing risks.

I’m hoping the cutback and adjustments they have made for COVID-19 will carry on after the lockdown ends, and they will look to make themselves a leaner business.

That said the ultimate goal is for someone to buy them up and merge them into their business. Sainsburys has the cashflow to survive and while they aren’t doing anything groundbreaking, they also aren’t growing.

I think your Ocado point is a good one. It’s this type of innovation which I’m taking the risk on. They have the money to survive for right now but it’s a company with issues that I’m taking a bet on.

We both agree on that, let’s hope it pays off! :smiley:

Apparently it’s now the cheapest of the big boys, when it comes to branded items. I guess Asda/Tesco may beat it when it comes to their own ranges, price wise.

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Not for my shop it’s not. not even close. The supermarkets know what stats they need to manipulate to ‘look good’ when these studies are being made and this is the outcome.

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“Which? only tracked stores that sell their full range online, so Lidl and Aldi were not included.”

That says everything.

Very interesting read!

Selfishly, I would love to see how you approach funds. I don’t yet invest in single stocks and have been more of a fund follower in recent years.

And how you apply the Genuine Impact rankings in your process is also very useful! I’d been using them as one of the research apps along with a few others, and I gradually find them more and more useful.

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Scottish Mortgage Investment Trust - SMT (Buy)

As requested by @piyushsg, some analysis and coverage on a fund. I decided to pick one of my personal favourite funds which I’m still invested in, and constantly topping up my position.

Scottish Mortgage is a fund, but not as you know it. This isn’t a mutual fund, it isn’t an ETF (exchange-traded fund,) it’s a completely different beast. Investment trusts work like equities (normal stocks like Apple,) are ran by a fund manager, but you are not investing in the pool of capital you are investing into the trust itself.

This has a few nice advantages, firstly no need to worry about liquidity because the share price is based on the trust, rather than what is held inside the fund. When you sell the fund manager doesn’t need to liquidate assets to meet your order. The downside is the price you pay is set on market demand, this is where you hear about people paying a premium for a trust (the cost of buying is more than the value of the assets held.)

Investment trusts do carry some additional risks, as they have a lot more freedom than your run of the mill fund. For instance, they are free to use gearing (leverage), and they can hold extremely illiquid investments as well. It’s important to understand how the trust is run before you invest as they are significantly more varied than an index tracker.

But what is Scottish Mortgage? And why am I such a huge fan of this trust?

Firstly, it has absolutely nothing to do with Scotland, nothing to do with mortgages, it invests in global equities, it’s all about high growth, and its owned by Baillie Gifford. Secondly, it’s one of the old running funds out there. Over 110 years old. Thirdly they are one of the biggest investment trusts in the UK, controlling over £8.2 billion.

All of that aside, I haven’t explained why this is my favourite investment trust. I am a simple man who loves returns.


From Scottish Mortgage Investor Information Website

In the past year Scottish Mortgage has returned 12.7% and in the past three years 59.7%.

The other two lines represent the “fair value” which is important to know if you are paying a premium or not, and the benchmark the FTSE All-World. Both graphs have been normalised to start at 100 to make it easier to see the change.

The point here being, this fund knows how to make money.

So what do they invest in? What does a global growth fund invest in? What is the secret sauce we mere mortals don’t know?


From Genuine Impact

It’s all the high growth companies you adore. The classics like Tesla, Amazon, Alibaba, Tencent, ASML, Netflix, and even Ferrari (not so sure about that last one.)

However, if you look at the complete list, while it is out of date you can see everything they invest in.

https://www.bailliegifford.com/en/uk/individual-investors/literature-library/funds/investment-trusts/portfolio-valuations/scottish-mortgage-valuation-29-february-2020/

They also have a very small selection of fixed interest, but a pretty broad range of unlisted equities too. Airbnb, Stripe, and TransferWise (to the pick on the interesting ones I know most about.)

This mix of unlisted and publically traded gives them a lot of room to find those explosive growth companies and just keep holding onto them.

High returns, focus on growth, beating its benchmark, what more do you need to know? Well, did you know it pays a tasty dividend as well?

scottish dividends
From Morningstar

Great returns, reliable dividends (mix of fixed income helps them maintain their payouts), and did you know it’s also super low cost? With an ongoing charge of only 0.37%, it’s cheaper than some index funds you can invest in!

#27 out of almost 8,000 funds for return, high-risk strategy to maximise the returns and very competitive fees for an actively managed fund!

I believe Scottish Mortgage should be a cornerstone in any portfolio. If you are looking for global equity exposure, with an aim to outperform the market, this should be the first fund you consider.

You do need to be aware of the added risks, while they have performed extremely well in the past, this is a high-risk portfolio, which uses a little gearing, invests in unlisted equities where the valuation is rarely updated, has funded debt for fixed income payouts, and is focused on high growth bets.

I hope you consider and give Scottish Mortgage Investment Trust a look, this is one of my constant buys where I regularly invest in it.

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Nice breakdown. SMIT is my biggest holding based on what I believe is exceptional management and a brilliant long-term growth strategy.

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Feels like every Brit has SMT in their holdings!

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Really great posts, @jcksmith850 — thanks for sharing them! :raised_hands:

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Thanks for all the great feedback! Glad you are enjoying the posts.

I’ll see what the news holds tomorrow and see if there are any interesting stocks or funds to chat about. I’m keeping an eye on Facebook’s earnings today, they are all ready up so I’m guessing investors are expected a drop in advertising revenue which has been offset by large growth.

Time will tell!


From Google Finance

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On the topic of Sainsburys, they had their quarterly announcement this morning.

Still slightly up but you can see the optimism ahead of the earnings before market close yesterday.

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Domino’s Pizza - DPZ (Buy)

One stock I’ve had my eye on for a while is Domino’s Pizza. The franchise has grown in popularity over the years, and after an aggressive rebranding in 2009, they have quickly become the biggest pizza chain in the world.


From Statista

Domino’s Pizza had their quarterly report already, it was last week, which gives us the perfect amount of time to let the earnings cool off and have a slice of the data ourselves.

Before we dive into the facts and figures. I found some interesting facts while doing some research into Domino’s Pizza, and there don’t fit anywhere else. Here are some interesting facts for you to munch on.

  • Domino’s stores across the globe sell an average of 3 million pizzas a day.
  • Domino’s operates 17,000 stores in more than 90 countries around the world (Q1 2020).
  • Domino’s estimates that it has more than 350,000 franchised and corporate team members worldwide .
  • More than half of Domino’s sales now come from outside the U.S. (2019 global retail sales: $14.3 billion of which, $7 domestic, $7.3 international).
  • Domino’s International has experienced 105 consecutive quarters of positive same-store sales growth (Q1 2020).
  • In the U.S., Domino’s generates more than 65% of sales via digital ordering channels.

Interesting to see their strength digitally, but also their success overseas outside their dominate home market. But let’s look at the historic share price.


From Google Finance

What should be catching your eye is that aggressive jump up in Feb. This is when they announced their fourth-quarter earnings for 2019, and beat expectations! They also increased their dividend by 20% off the back of higher profits.

How is Domino’s Pizza expanding so quickly and so successfully? The franchise approach gives them a way to expand their stores with very low upfront costs (the franchise owner pays and also has to source the location) and they take a cut of the revenue as well. How much they take is tricky to find. A lot of franchises do try and hide the figures, and often only the “book cost” percentages are known.

Let’s talk about running a Domino’s Pizza store. Firstly, if you apply to open one of their stores it is likely you will be turned down.

Over 90% of its franchise owners come from being a Domino’s team member first and that “opportunities for external candidates are very limited and are sought only when [the company does] not have an existing franchisee or new internal franchisee who can buy or build the stores in need.”
From Franchise Direct

Assuming you worked at a Domino’s and wanted to open your own, you would need roughly £200k of dough. In return, you would expect to make 8-9% of total sales as take-home profit. £90k as profit for a store owner per year for the bigger stores.

Keep in mind this includes “contributions” towards Domino’s pizza for branding and marketing. Each store is created with either a ten or five-year contract, meaning they aren’t going away anytime soon. Considering most stores will pay off the upfront costs and be paying profits to the owner within that time frame, it’s likely they will renew.

Now we can check out a snapshot of the company and see where its strengths and weakness are as an investment.


From Genuine Impact

This is a classic, high quality, high momentum stock. You have strong financials, there is a lot of a promise for the future, and even with the spike in share price, not massively overpriced compared to the market.

We’ll start with the financial aspects, the quality. The profitability of Domino’s Pizza is not as high as you’d expect. Relative to the rest of the market this isn’t a high-profit business. What is improving the quality rank then? It’s the financial strength and capital allocation. High dividend pays out and low debt makes this a very resilient company.

Speaking of debt, let’s get the figures out of the last report.

  • $200.8 million of unrestricted cash and cash equivalents;
  • $4.10 billion in total debt ; and
  • $158.6 million of available borrowings under its $200.0 million variable funding note facility, net of letters of credit issued of $41.4 million. As previously disclosed, subsequent to the first quarter, the Company borrowed $158.0 million under its variable funding note facility.

$4.1 billion of debt sounds a scary number, why are they considered a low debt company? The net income for Q1 was $121.6 million and growing. The debt isn’t being called up any time soon. It does restrict their ability to take on additional debt, but the high incoming and reliable revenue (long term contracts on each franchise) and physical assets (franchises borrowing equipment from Domino’s Pizza directly) means there are a lot of reassurances for anyone lending to Domino’s Pizza.

I didn’t have much to add on the value but then I did some extra digging. Price to income and cash flow Domino’s Pizza are considered overpriced and expensive.

However, if you look at the price to book ratio for the current financial year and previous two, Domino’s Pizza has almost the cheapest valuation out there, #72 out of 5,500 stocks. This is only one metric, by and large, this is an expensive stock to pick up.

As we shift our focus to the momentum, I wanted to highlight the future share price versus future growth estimates. The expected returns analyses the expected share price increase looking ahead 12 months. The expected growth is looking at revenue and EPS growth. A high dividend will drag on the share price but the future growth of the company looks very promising.

The momentum is high, with a lot of analysts flagging this investment as a buy. They have extremely strong future revenue and earnings growth, which is fueling the high confidence.

So what could possibly be the downside?

As of April 21, 2020, nearly all of the Company’s U.S. stores remain open, with dining rooms closed and stores deploying contactless delivery and carryout solutions. Based on information reported to the Company by its master franchisees, the Company estimates that as of April 21, 2020, there are approximately 1,750 international stores that are temporarily closed.

Company Withdraws Two- to Three-Year Outlook
Due to the current uncertainty surrounding the global economy and the Company’s business operations considering COVID-19, the Company is withdrawing its two-to three-year outlook for global retail sales growth, U.S. same store sales growth, international same store sales growth and global net unit growth.

They are throwing up the stop signs and preparing to underperform as the pandemic carries on. This seems a sensible move given the future is hard to predict and plan for right now.

This level headed approach has only added to the confidence in management to delivery.

A strong brand and franchise setup, good cash flow to keep them safe, high future growth prospects, a growing dividend, and damn tasty pizza. What isn’t to love?

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