First cut – IMMO, LOOP, ESP, ACRL, MPAC

Note: While the 7:59 cut format was popular, most didn’t read it until after 9am, and while it was fun predicting the share price reaction just ahead of the open, I could have easily “cheated” by getting pre-market quotes. Therefore I’m going to publish when I’ve covered everything I want to rather than at a particular time. “First cut” will remain less detailed, less edited, but more timely than my full articles.

IMMO – Fund raising

Immotion have virtual reality experiences installed in aquariums and other entertainment attractions. They say:

During March 2020, and as a direct result of the COVID-19 pandemic, the vast majority of the Company’s Partner sites and all of its own ImmotionVR sites closed, following local and national Government imposed lockdowns. This has resulted in the Company having no revenue since the closures. The Company assumes that most sites will remain closed until at least 30 June 2020 and revenue through to 30 June will be zero or minimal. It is anticipated that the total cash burn for this lockdown phase from 30 April 2020 to 30 June 2020 (based on an assumption of zero revenue) will be circa £0.6m.

The report cash in hand of £1.2m and cash burn has reduced to £200k / month, but also need funds for investment once the lockdown ends. Accordingly they are raising £1.3m in a placing at 2.5p/share, resulting in dilution of approximately 10%. There is no way for most private investors to participate.

They are preparing protocols for future reopening and expecting to shortly continue work on most of the remaining installations that would have made them cash-flow positive in a pre-coronavirus world. Their outlook is:

the Company believes that trading will be interrupted for some time and it may take at least twelve months for conditions to return to normal levels as Partner sites re-open and attendances return to nearer normal levels, as social distancing measures are relaxed, and consumer confidence returns based on a significantly lowered threat of COVID-19.

Opinion: Dilution is modest at 14% and while the target price is a discount to yesterday’s close it is above recent lows. They are raising in relatively good time before cash becomes critical. However the exclusion of private investors raises the risk of more severe dilution if further funds are required. Attendances and in particular “ridership” seems very unlikely to return to normal levels worldwide within 12 months.

LOOP – Trading Update

LoopUp, a company providing remote meeting services with an element of pay-per-use, report trading materially ahead of expectations.

Revenue is growing in three dimensions: Existing customers onboarding more users; existing users increasing usage; new customers being signed up. While increased revenue from existing customers was an inevitability, with most mindshare going to Zoom and Microsoft Teams, acceleration in the addition of new customers is good news.

They report revenue up 40% on the first 4 months of last year. While some of this growth would have already been in forecasts, this will significant understate the acceleration over the last two months. No figures are given that easily allow the current run-rate to be calculated.

With gross margins around 65-70% cashflow and profitability will be up significantly. The company has some debt, but this is being paid down fairly rapidly.

When the coronavirus first started making the headlines in the UK shares were sold off indiscriminately and LoopUp was amongst them. I picked them up at a bargain price but sold out too early on concerns over long-term competitive positioning. This remains my concern – their product is “sold” using expensive sales teams, whereas their higher-profile competitors are “bought” by end users, giving a fundamental cost and scale advantage those competitors.

ESP – Trading Update

Empiric Student Property are clearly affected by the virtual full closure of UK universities for in-person teaching and the shuttering the student lifestyle. However it seems many students will do anything to avoid their parents with reductions of only 12% in expected 2019-20 revenues, far less than the worst-case predictions following the decision to release all students from their contracts from 25th April should they wish to vacate.

Of course some of these students are unable to travel home and overseas students are highlighted as a particular risk for 2020-21 with overall bookings down from 54% of capacity this time last year to 47%.

Opinion: The whole UK university sector is in very serious trouble. The UK’s image abroad has been badly damaged both by our handling of coronavirus and by Brexit which is likely to lead to a significant loss of market share for overseas students over many years. The high costs of the student loan system is resulting in pressures that may lead to a reduction in home students. There is evidence that too many people are going to university and attempts to address this via apprenticeships may yet succeed. The “student experience” as a concept is slowly withering and in-person lectures looking increasingly archaic. In the short-term coronavirus is casting severe uncertainty over the 2020-21 academic year and the impact from the loss of secondary school teaching may also affect 2021-22 numbers.

These problems are likely to be felt particularly keenly in the student accommodation sector. However while much of this still consists of shared and converted houses I believe that purpose-built student accommodation enjoys a significant cost advantage. Private facilities, starting with bathrooms, but now also kitchens, are also ever more desirable, a trend clearly accelerated by coronavirus. Excessive financial gearing is a risk, but here Empiric is well positioned and provided they can keep costs down they have all the hallmarks of a survivor.

ACRL – Trading update

Accrol make toilet paper and similar products. They nearly bankrupted themselves a year or two back with disastrously executed expansion plans that run up against adverse movements in commodity material prices. With panic buying of toilet rolls within their reporting period I would have expected today’s update to be positive, but it is merely inline. This is one of the best recovery stories of recent times and they appear to remain on track.

MPAC – AGM Statement

The crux of their statement is:

Cash generation in the first three months of the year was in line with management expectations prior to the pandemic.  We have modelled and stress tested our liquidity under extreme assumptions as a result of the spread of COVID-19 and we remain well positioned to meet our liquidity requirements beyond 2020 from existing resources.

Short-term cash generation is clearly good news, but I am disappointed to see nothing about order intake. I would expect this packaging equipment company to be quite defensive provided their customers do not become too capital-constrained.

Small Caps Live

You are invited to join Mark Simpson and I on Small Caps Live to discuss any of the above at 11am today. To help us prepare please log in early and vote for the company/ies you would like us to discuss.

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