Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
A good day…. B
The people at Equity Development - same site as hosted the investor presentation earlier this week - have done their "research paper" revising down their fair value assessment from 245p to 190p. You may like to compare your assumptions with theirs if you have not done so already.
Interesting post, Agricore. I'll have a think about what you say and still working through the numbers myself.
Still waiting to buy in… could be 50s or 60s at this rate… seems friendless since the RNS…..not sure a near 50% mauling is right… could be one to buy and hold for the recovery…. With so much stock in sticky hands, it will be volatile for a while with not much volume punching above its weight and causing such destruction…..B
CONTINUED
4. SUP's management deserve a heck of a lot of credit for being candid about the situation. I think absolutely all credit to them for raising it. I would 1000% rather be invested in a company that is trustworthy and honest.
5. There was no value placed on the customer relations introduced through the Liberty acquisition. The £1.5m uplift in EBITDA and 7X valuation could actually turn out to be much more if Supreme leverage their "it's not fair" upsell/cross sell approach to these new accounts.
6. Closed system vaping. People can moan about the "disposal" nature of closed systems but Sandy while wringing his hands from an ESG point of view can also rub his hands as the margin is *COLOSSAL*. I calculate it to be 25x more profitable (£5 for 2ml vs £1 for 10ml - appreciate these are RRP but the underlying margin is going to reflect this). And it's the larger market segment according to what I've read (I've never vaped). I do also get the value of giving customers the option to move from closed to open.
GLA
One interesting fun fact: back in December 2021 when SUP was £2+ the forecast EPS for FY2022 was 11.7p/share. They actually achieved 12.4p a share.
But it's the future estimations to which we now turn. My calculations differ slightly:
I get to a 37% increase of GP for Vaping forecast for FY2023 (£26.7 vs £19.5).
Vaping becomes 75% of total GP. There's a 30% organic increase forecast and a 7% GP contribution (£1.5m) from Liberty Flights.
Lighting: GP forecasts are £4m and £6m. I am still chewing over the 20 times the life and 5 times the cost logically suggests revenue should drop by around 75%. I therefore am sceptical about the GP figure for FY2023 and FY2024. But if it's overstated I would estimate a £3.5m and £5m GP forecast as being more realistic. The drop in sales due to LED lifetime, is partially offset by higher market share in the coming 2 years.
Batteries static at FY23 and FY24 of £3.8m. No reason to think that will change up or down. I think someone asked about any risk of LED batteries lasting a lot longer on the call today. Either that or Hannah got confused. Or I misheard. Has anyone heard of these LED batteries?!
Household again is the same as forecast.
Wellness. One question which has occurred to me following today's call is the extent to which the price of whey was emphasised. Forgive me if I've got this wrong but you only find whey in Keto shakes and protein mixes. The Wellness category is far, far wider than whey. So that has made me question why the forecast drop in profits. The 130% yoy was stupendous (although not altogether surprising). I do wonder why this hasn't been forecast more optimistically going forwards? I guess other ingredients have gone up too for vitamins etc..... but surely these costs can be passed on? I mean if SUP sell a year's supply of Vitamin X for £6 instead of £5 then sales won't fall off a cliff? I say this rhetorically as there is a wide variation of prices and packet sizes. I have noticed quite a lot of aggressive promotional pricing however. I bought several bags of Keto Shakes for £2 each I think which now seems an incredible bargain given the price rises. Was Sealions a bit naive in some of its pricing?
Other thoughts:
1. The capacity increase due to the Liberty acquisition enables SUP to scale the Vaping business so we could see surprises to the upside if some of the predicted migration of smokers to vaping does occur.
2. Wellness - a profitless exercise? I still think this could surprise to the upside. People still value wellness even in a recession. There's lots of opportunity for trading down from Holland & Barrett, and Millions in all the Pound shops is perfectly placed.
3. There's no value placed on SUP's proven capability to obtain value from M&A. This is a fairly rare gift.
4. SUP's management deserve a heck of a lot of credit for being candid about the situation. I think absolutely all credit to them for raising it. I would 1000% rather be invested in a co
Hi, thanks for this and to Rooba for the comments on the other thread. I though the call was reassuring and the explanation on lighting plausible and the vaping stuff is still exciting as a growth prospect. I also wouldn't be surprised to see some director buys.
I'm still working through all the numbers, but what I reckon so far is:
Before the RNS, we knew what 2022 was going to be and the RNS just confirms that. Before the RNS, the SP was, let's say, 125p - which takes account of all the macro problems etc etc. Given that the 2022 numbers are basically the same before and after the RNS it doesn't help valuation of the SP drop, instead I compare 2023E using Equity Development's numbers. EPS before was 13.3 and is now 9.3: using before SP of 125 and after SP of, say, 80 that gives PE of 9.4 before and 8.6 after. If you look at it in terms of 2023 div yield, 5.84% becomes 5.87%; earnings yield goes from 10.64 to 11.625 and div cover from 1.82 to 1.97. So it has got cheaper on these measures, but not by a lot. The div numbers from ED also seem to include the final div from 2022 in 2023, which isn't very helpful, as that keeps the payout ratio at 50% for FY23, but we know it's going to 25% - hence 2024 is a div of 2.6p with EPS of 11.7. So based on all this, my impression so far is that the drop is basically about right (assuming that the SP before the drop was about right). However, I'd love to be told that there is something in the RNS that I've missed that puts a better gloss on things because I have a position in this already and would obviously like a SP rise from here!
Here's what I got from yesterday's annual report coupled with the comments at this morning's investor presentation. Gross profits ex. FX (in £000's), Batteries - £3,681 assume 20% fall = £2,944.8. Lighting - £8,956 assume 50% fall = £4,478. Vape - £19,502 assume 30% growth = £25,352.6. Wellness - £3,542 assume 20% fall = £2,833. Other - £1,196 assume 20% fall = £956.8. Total 2022 = £36,877, Forecast 2023 = £36,565.8. So we have a 38% share price drop in response to a forecast 1% drop in gross profit. Various other moving parts of course but that seem pretty extreme reaction to me.