UK Small Companies' valuations seem highly attractive for long term investors

[Dinar]

1 hour ago, Spekulatius said:

FERG (a UK company but virtually all their business is in the US) is another one I am following. It's a distributor, somewhat similar to WSO. Recent podcast discusses it:

https://podcasts.apple.com/us/podcast/value-hive-podcast/id1492171651

 

I think it's overearning right now, but it's an interesting stock to look at.

 

 

Spek, what do you think normalized EBIT margin should be?  Thank you.

[thowed]

16 hours ago, ACooke said:

Out of curiosity, is there anything in particular that makes you believe Fevertree could be one of the next great global brands?

 

I'm very much trusting in Lindsell Train - who have over 20+ years been a UK Buffett-esque house with regards to identifying companies with strong brands/moats.

 

They are now one of the largest shareholders & recently reiterated their confidence.  They said they were impressed by the management taking a short-term hit this year (as stated above with increased costs), in order to keep investing for the long-term i.e. not try to massage the figures & play a short-term game.

 

Obviously US execution is key, but they are effectively a monopolist in the UK now & the founders are still involved and major shareholders.

 

Lindsell have more on their website.

 

 

 

[changegonnacome]

Truss gone! Men in grey suits told her to go & she did.......UK but more correctly the Tory parties flirtation with extremist experimental politics might be over........I would expect a centrist Tory candidate to emerge.....a safe boring pair of hands or maybe not.

[Spekulatius]

17 hours ago, Dinar said:

Spek, what do you think normalized EBIT margin should be?  Thank you.

That’s a question I try to answer myself. If I had to guess, about 2% less in EBIT than currently (10% EBIT to 8% EBIT). The 2 % EBIT reduction resulting from a 1% reduction in gross margin and 1% increase in SG&A basically going back to pre COVID-19 numbers.

[Dinar]

1 hour ago, changegonnacome said:

Truss gone! Men in grey suits told her to go & she did.......UK but more correctly the Tory parties flirtation with extremist experimental politics might be over........I would expect a centrist Tory candidate to emerge.....a safe boring pair of hands or maybe not.

What's extremist about cutting taxes?  If done properly, it can reduce inflation, boost economic growth and reduce budget deficit.   I would not have done what Truss did.  I would have not offered energy subsidies, but eliminated income tax on those making under 45,000 per annum if single, 90K per annum if married, and say bigger tax break if one has kids.  I would NOT have touched dividend tax or corporate tax.  I would have also eliminated the 45% top rate the way she did it.  You need to induce people to work, and make it more appealing to work rather than sit on the dole.  I would have raised consumption taxes - say on football matches, soft drinks, chips, gambling (keeping in mind that too high of a gambling tax may drive the market off-shore/underground)

[changegonnacome]

58 minutes ago, Dinar said:

What's extremist about cutting taxes?

 

I was more focused, in my mind, on the Northern Ireland Protocol Bill that Truss drafted and was bringing through the commons.....which effectively reneged on the post-Brexit international trade agreement the UK government signed with the EU a few short months ago..........which also effectively would have been the opening shots of a trade war with the EU.....just the UK's largest trading partner, no biggie. 

 

It was this populist/extremist nonsense I was really referring but also cutting tax/increasing spending and blowing up your fiscal deficit at time of inflation wasnt too smart either. There is a time to cut taxes and it aint when the BoE is trying to tighten financial conditions.

[Dinar]

18 minutes ago, changegonnacome said:

 

I was more focused, in my mind, on the Northern Ireland Protocol Bill that Truss drafted and was bringing through the commons.....which effectively reneged on the post-Brexit international trade agreement the UK government signed with the EU a few short months ago..........which also effectively would have been the opening shots of a trade war with the EU.....just the UK's largest trading partner, no biggie. 

 

It was this populist/extremist nonsense I was really referring but also cutting tax/increasing spending and blowing up your fiscal deficit at time of inflation wasnt too smart either. There is a time to cut taxes and it aint when the BoE is trying to tighten financial conditions.

Ah, makes sense, I was not paying attention to the Northern Ireland issue.  

[changegonnacome]

3 minutes ago, Dinar said:

Ah, makes sense, I was not paying attention to the Northern Ireland issue.

 

my bad i was throwing around hyperbole without any context.

 

Have to say this was a good one whoever came up with this......needless to say the lettuce won

 

https://www.nytimes.com/2022/10/19/world/europe/liz-truss-lettuce-stream.html

[Spekulatius]

1 hour ago, changegonnacome said:

 

I was more focused, in my mind, on the Northern Ireland Protocol Bill that Truss drafted and was bringing through the commons.....which effectively reneged on the post-Brexit international trade agreement the UK government signed with the EU a few short months ago..........which also effectively would have been the opening shots of a trade war with the EU.....just the UK's largest trading partner, no biggie. 

 

It was this populist/extremist nonsense I was really referring but also cutting tax/increasing spending and blowing up your fiscal deficit at time of inflation wasnt too smart either. There is a time to cut taxes and it aint when the BoE is trying to tighten financial conditions.

I think this North Ireland issue was a leftover from BJ. I guess they changed the talking heads but not really the agenda.

 

Since you like they grey Tori suits, you have to ask yourself who put Truss in charge just 6 weeks ago/ The same grey suits of course.

[changegonnacome]

51 minutes ago, Spekulatius said:

I think this North Ireland issue was a leftover from BJ. I guess they changed the talking heads but not really the agenda.

 

Since you like they grey Tori suits, you have to ask yourself who put Truss in charge just 6 weeks ago/ The same grey suits of course.

 

Yeah the Northern Ireland issue is a really a left over from 2016.......where the UK could never quite square the circle around a 'hard' brexit & a Brexit that didnt cost billions and billions of pounds in lost trade/growth. In some ways Northern Ireland is the physical manifestation of the issue they had. They have never really reconciled that issue politically.......which is to say what did "Brexit" really mean....and what did people actually vote for in that famous referendum. It was too simplistic to put "IN" or "OUT" on the ballot box....but thats what they did.

 

On Truss & Grey suits - Well it was the Tory faithful.....the paid up membership of the political party itself who voted her in six weeks ago, with no doubt the grey suits doing what they do to get the 'right' candidate but even an election involving a few 100,000's people can be unpredticable and you got Truss.....a Minister who had been nearly sacked in her last two Ministerial posts........the grey suits I refer too, are of course the senior shadowy figures i the Tory party who have no desire to sit on the front benches but are hugely influential (Sir graham Brady & the 1922 committee)......they told her to leave & she resigned this morning.....its a very curious system they have there.......with serious democratic deficits.

[Spekulatius]

This behind the curtain thing is just disgusting. I  think they need to call an election.

I do not know the UK constitution that well, but it seems from a democratic POV, anything else is just unacceptable.

[Sweet]

In the UK we don’t elect a Prime Minister, it’s simple, whichever party wins the election forms the government and the leader of that party is the Prime Minister.

 

In some ways it actually a good thing for democracy since are more ways to get a person out of office.  Long term the system has been shown to work.

 

In other ways it’s worse because there is a democratic deficit, but we tolerate it for the longer term good.

 

My own opinion is we need a general election, I agree the Conservatives have selected too many leaders.  The Tories are a fractious mess and some of them need to be retired and some time in opposition might humble them.

[Sweet]

8 hours ago, changegonnacome said:

 

I was more focused, in my mind, on the Northern Ireland Protocol Bill that Truss drafted and was bringing through the commons.....which effectively reneged on the post-Brexit international trade agreement the UK government signed with the EU a few short months ago..........which also effectively would have been the opening shots of a trade war with the EU.....just the UK's largest trading partner, no biggie. 

 

It was this populist/extremist nonsense I was really referring but also cutting tax/increasing spending and blowing up your fiscal deficit at time of inflation wasnt too smart either. There is a time to cut taxes and it aint when the BoE is trying to tighten financial conditions.

Let’s not exaggerate about the ‘extremist’ nonsense.  Countries change their international relationships regularly, and apply and interpret law it as it suits them.

 

International law is only given effect through domestic legislation in the UK.  If a new PM comes along, and they can take a sufficient number of the Parliament with them, they can change international relationships.  It’s their right.

 

The NI Protocol, implemented as part of the Brexit trade deal, is in many respects unworkable.  It’s also unique in that it puts a trade barrier within a country.  I can’t imagine very many countries willing to accept that, certainly not the US.

It’s takes quite a bit of spin to portray the Tories as extremists - They aren’t.

 

Regarding the finances.  We don’t actually know if the fiscal deficit would have increased, the mini-budget was not the full story, cuts in public spending were touted to follow.  The messaging was bad, the plan clearly not fully formed, but is that extremism - of course not.

[changegonnacome]

1 hour ago, Sweet said:

The NI Protocol, implemented as part of the Brexit trade deal, is in many respects unworkable.  It’s also unique in that it puts a trade barrier within a country.  I can’t imagine very many countries willing to accept that, certainly not the US.

 

Accept?......there's no accepting anything.......thats the deal the UK, a sovereign nation, signed/accepted with the EU not in 1999 but on December 30th, 2020 which included a trade barrier clearly articulated and located in the Irish sea between N.Ireland & UK..nobody forced anybody to sign anything........if its unworkable, why did they sign it then? If its unacceptable, why was it accepted?*.......and this wasn't signed by some OTHER government or another party years ago as your post seem to suggest might be OK (it isnt of course, trade deals are effected under the principle that they have shelf life beyond the basic political calendar or at least developed nations act that way).....& anyway this deal was signed by THIS very same Tory government 21 months ago......and NI Protocol bill was aimed at dismantling that international trade agreement where the ink was barely dry. 

 

* answer this Tory party/government, hijacked post-Brexit by its extreme right wing....( FIVE prime minister in SIX years is quite a record & quite 'extreme' i would say for any Western developed G7/G20 nation).....meant that the one before last (Boris) signed a trade agreement at the end of 2020 with no intention of honoring it.....just so Boris could say he 'got Brexit done' as per his election slogan. This is not the way the UK used to do business and its quite sad...the UK has an incredible history and its contribution to democracy & the common law system is undeniable....to see its political leadership flounder like this is disappointing for the people of the UK and a loss to the international order.

Edited October 21, 2022 by changegonnacome

[UK]

This is interesting view: https://www.wsj.com/articles/the-u-k-market-meltdown-prime-minister-uk-borrowing-tax-cuts-energy-subsidies-truss-resign-kwarteng-boe-11666273710?mod=hp_opin_pos_4

 

Economic growth, which brings with it higher interest rates, might now be viewed by many in the market as a bug rather than a feature. It’s terrible news if so. Britain has shown over the past month that it cowers in the shadow of a financial system that can no longer tolerate productive economic growth or the policies necessary to achieve it. Will other countries find the same to be true for them?

[Sweet]

12 hours ago, changegonnacome said:

 

Accept?......there's no accepting anything.......thats the deal the UK, a sovereign nation, signed/accepted with the EU not in 1999 but on December 30th, 2020 which included a trade barrier clearly articulated and located in the Irish sea between N.Ireland & UK..nobody forced anybody to sign anything........if its unworkable, why did they sign it then? If its unacceptable, why was it accepted?*.......and this wasn't signed by some OTHER government or another party years ago as your post seem to suggest might be OK (it isnt of course, trade deals are effected under the principle that they have shelf life beyond the basic political calendar or at least developed nations act that way).....& anyway this deal was signed by THIS very same Tory government 21 months ago......and NI Protocol bill was aimed at dismantling that international trade agreement where the ink was barely dry. 

 

* answer this Tory party/government, hijacked post-Brexit by its extreme right wing....( FIVE prime minister in SIX years is quite a record & quite 'extreme' i would say for any Western developed G7/G20 nation).....meant that the one before last (Boris) signed a trade agreement at the end of 2020 with no intention of honoring it.....just so Boris could say he 'got Brexit done' as per his election slogan. This is not the way the UK used to do business and its quite sad...the UK has an incredible history and its contribution to democracy & the common law system is undeniable....to see its political leadership flounder like this is disappointing for the people of the UK and a loss to the international order.

 

Why the sensationalism?

 

The majority that voted for Brexit are not extremists, and the Tory Party that implemented Brexit was not hijacked.  Two post-Brexit PMs, Truss and May, voted remain - are you forgetting that?  The Tories have long had a Eurosceptic wing, and in fact so did Labour.  Leaving the EU is not an extremist endeavour.

 

The UK joined the European Economic Community but left the European Union.  There is a significant difference between the institutions, in scale, in scope and the areas they regulate.  At no point from joining in 1973 where the people of the UK consulted about the increasing scope of the European project, not a single treaty change was put to the UK electorate by referendum in 43 years.

 

Should the UK have signed up to a post-Brexit trade agreement that split their country?  My view is no, and that it was a mistake.  However there were quite different interpretations about how the NI Protocol should be implemented, with the UK side believing it would only impact goods at risk of moving to the Republic of Ireland, and the EU believing that all consignments from GB to NI need checked.  That’s quite a gulf.

 

There are problems with the NI Protocol, every side admits that now.  Let me repeat, every side, including the EU, agree the NI Protocol has problems.  The flow and approval of medicines in the UK as part of the health service was under threat, and an agreement had to be reached between the EU and UK to resolve this.  The fixes, and grace periods, and offers of reduced checks by the EU are proof there are issues because none would be required if the Protocol was working well.

 

The safeguards to the Northern Ireland Protocol, the infamous Article 16, says that the UK or the EU can take unilateral action for a number of reasons.  It states that:

 

•  "If the application of this Protocol leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade, the Union or the United Kingdom may unilaterally take appropriate safeguard measures. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Protocol."

 

We have diversion of trade between GB and NI - fact.  We have societal unrest in NI - the devolved government in Northern Ireland has collapsed because of the Protocol - fact. 

 

The conditions for triggering Article 16 have therefore been met.  Unilateral action by the UK government is entirely in keeping with the Brexit Agreement and the safeguards therein.  Not very many people understand this, because they haven't actually read the NI Protocol.

 

Edited October 21, 2022 by Sweet

[changegonnacome]

2 hours ago, Sweet said:

Should the UK have signed up to a trade agreement that split their country?  My view is no, and that it was a mistake. 

 

The problem of course is the UK did sign an agreement that did just that.......for cheap political expediency & for the 'got Brexit done' headlines.............the UK signing agreements used to mean something.......the UK used to be a serious country.......but like a drunkard regretting his actions from the night before is trying desperately, through arcane legal maneuvering, to get out of a deal where the ink is barely dry.

 

The EU disagrees vehemently that issues in the implementation rise to a level that would allow for the triggering of Article 16/NI Protocol, as you know, and so if the UK proceeds the EU will simply act unilaterally itself & impose tariff's......the economic consequences for the EU are minor, for the UK they are devastating....the potential trade war, has asymmetric outcomes for the parties involved...........so my point is this and why I use the word extreme......is that when an international counter-party was considered to be rational/dependable for decades as the UK was and then begins to act as the UK has the last five year.... its viewed as quite an extreme shift. I work in this space & the question on the tongues of international participants these last few years is overwhelming "what the hell is going on with the UK, they've lost their minds?". Its tough one for the politcal establishment in the UK I dont deny that.....in some ways the electorate/British population is engaged in a kind ideological civil war since 2016.....which leads to schizophrenic political political leaders who dont know what to do such that they can get elected later.

 

We wont side track this thread further. I understand your arguments, parts have merit.....my wish for the UK is that the next PM is a move away from populists like Boris & Truss.....and return to pragmatists who dont campaign & rule in three word slogans like "take back control "get brexit done" etc etc....you seem rational and so I think we can both agree that the UK can and does deserve better than the last two PM's.

[Sweet]

1 hour ago, changegonnacome said:

 

The problem of course is the UK did sign an agreement that did just that.......for cheap political expediency & for the 'got Brexit done' headlines.............the UK signing agreements used to mean something.......the UK used to be a serious country.......but like a drunkard regretting his actions from the night before is trying desperately, through arcane legal maneuvering, to get out of a deal where the ink is barely dry.

 

The EU disagrees vehemently that issues in the implementation rise to a level that would allow for the triggering of Article 16/NI Protocol, as you know, and so if the UK proceeds the EU will simply act unilaterally itself & impose tariff's......the economic consequences for the EU are minor, for the UK they are devastating....the potential trade war, has asymmetric outcomes for the parties involved...........so my point is this and why I use the word extreme......is that when an international counter-party was considered to be rational/dependable for decades as the UK was and then begins to act as the UK has the last five year.... its viewed as quite an extreme shift. I work in this space & the question on the tongues of international participants these last few years is overwhelming "what the hell is going on with the UK, they've lost their minds?". Its tough one for the politcal establishment in the UK I dont deny that.....in some ways the electorate/British population is engaged in a kind ideological civil war since 2016.....which leads to schizophrenic political political leaders who dont know what to do such that they can get elected later.

 

We wont side track this thread further. I understand your arguments, parts have merit.....my wish for the UK is that the next PM is a move away from populists like Boris & Truss.....and return to pragmatists who dont campaign & rule in three word slogans like "take back control "get brexit done" etc etc....you seem rational and so I think we can both agree that the UK can and does deserve better than the last two PM's.

 

The problem for the EU, and your argument, is that the EU signed up to the Brexit treaty too.  In black and white text it sets out the conditions by which unilateral action can be taken.  The EU can disagree, but the facts are clear, the trade statistics have already demonstrated that there is a diversion of trade. 

 

Brexit: Northern Ireland goods exports to Republic 'reached €4bn in 2021' - BBC News

 

Importantly this diversion of trade will increase substantially should the grace periods for checking goods ends, and the checks the EU wants are implemented in full.  That says nothing about the political situation in NI.

 

For all the bad faith from both sides - and to be clear I think both the UK and EU knew this couldn't work from the start btw - the UK has held off from Triggering Article 16 for much longer than they are required to do so under Annex 7.  Ironically the UK have actually presented serious proposals to alter the Protocol to make it work, but does the EU want to make it work, or just use it as leverage for something else?  I don't know.

 

I also don't know what is the best deal, or who is best placed to deliver it. 

 

I just dislike the claims of extremism, I think it's very out of touch with what real extremism is and looks like.   Foolish, chancers, liars... sure.

 

Extremists???  No way.

 

 

 

Edited October 21, 2022 by Sweet

[changegonnacome]

35 minutes ago, Sweet said:

I just dislike the claims of extremism, I think it's very out of touch with what real extremism is and looks like.   Foolish, chancers, liars... sure.

 

Yes totally get where your coming from.

[thepupil]

in january 2021, low quality, highly levered but asset rich pub company Marston's received a buyout for 87p / share, stock traded to 100p. In dollar terms the stock has since declined by 77%. i looked at it a few months back in the 50's (now 33p) and couldn't get a ton of conviction they'd make it through w/o raising substantial dilutive capital...but i also didn't conclude that they were destined for failure. 

 

also a writeup on VIC for JDW which is apparently a better run peer, also down 74% in USD so maybe that's the better play. 

 

probably better to buy higher quality co's but just noticed these because have a passing interest in british pub real estate (just seems like an enduring asset)

[kab60]

On 10/21/2022 at 6:27 PM, thepupil said:

in january 2021, low quality, highly levered but asset rich pub company Marston's received a buyout for 87p / share, stock traded to 100p. In dollar terms the stock has since declined by 77%. i looked at it a few months back in the 50's (now 33p) and couldn't get a ton of conviction they'd make it through w/o raising substantial dilutive capital...but i also didn't conclude that they were destined for failure. 

 

also a writeup on VIC for JDW which is apparently a better run peer, also down 74% in USD so maybe that's the better play. 

 

probably better to buy higher quality co's but just noticed these because have a passing interest in british pub real estate (just seems like an enduring asset)

I don't like the pub business, but JDW is an interesting company. Their CEO is a bit of character and often references Buffett in his shareholder letters.

 

They have quiet a bit of debt but smartly hedged a lot of it from floating to fixed (until 2031 IIRC). They also own most of their land and pubs and renegotiated a bunch of their leases during covid.

[UK]

 

[rossef2]

On 10/19/2022 at 9:52 PM, thowed said:

 

I'm very much trusting in Lindsell Train - who have over 20+ years been a UK Buffett-esque house with regards to identifying companies with strong brands/moats.

 

They are now one of the largest shareholders & recently reiterated their confidence.  They said they were impressed by the management taking a short-term hit this year (as stated above with increased costs), in order to keep investing for the long-term i.e. not try to massage the figures & play a short-term game.

 

Obviously US execution is key, but they are effectively a monopolist in the UK now & the founders are still involved and major shareholders.

 

Lindsell have more on their website.

 

 

 

 Looks like we've reached peak gin, read that distilleries have started to shut and vodka sales have overtaken gin. Also noticed Schweppes among others have their own posh mixers available now, not sure where fevertree goes from here?

[rossef2]

On 10/24/2022 at 6:33 AM, kab60 said:

I don't like the pub business, but JDW is an interesting company. Their CEO is a bit of character and often references Buffett in his shareholder letters.

 

They have quiet a bit of debt but smartly hedged a lot of it from floating to fixed (until 2031 IIRC). They also own most of their land and pubs and renegotiated a bunch of their leases during covid.

The JDW near me was the fourth highest earner per square foot prior to covid. Every time I walk past or have been in over the past few months it seems quiet. Not sure if it's the same across the country but it always seemed to me the old alchoholics kept the place afloat during the week but now they don't seem to be in as much (Or are dead). 

[Sweet]

The problem for UK companies is that they are significantly cheaper than comparable US companies, and tend to stay that way.