Interview. John Hughman & I highlight 16 stock ideas. Happy Easter everyone

28th Mar by Paul Hill

9 comments 832 reads

#BT. #ANG #MBH #TENG #HAT #SDY #HVO #AMS #POLB #NBB #ULVR #CABP #GMR #WATR #TUNE #ADF

On today's Easter stock picking fest, I was delighted to speak to accomplished investor John Hughman of Vox Markets – including:

00:00 His approach to investing.

03:25 New ‘free’ stock picking service

04:55 BT

11:00 Angling Direct

14:05 Michelmersh Brick

18:50 Why smallcaps aren’t leading the economy?

22:40 Ten Lifestyle

26:50 H&T

30:00 Managing portfolio construction

32:05 Speedy Hire

37:05 hVivo

42:00 Advanced Medical Solutions

45:55 Poolbeg Pharma

50:40 Norman Broadbent

53:05 Unilever

58:50 CAB Payments

63:55 Gaming Realms

66:45 Focusrite

71:55 Use of AI for stock picking

72:55 Water Intelligence

76:45 Facilities of ADF

81:00 Use of ChatGPT to analyse companies

Disclosure : John holds #BT. #ANG #TENG, #HAT, #HVO, #POLB, #ULVR, #TUNE & #ADF, whilst I own #MBH & #WATR. #HVO & #POLB are also Vox Markets clients.

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Paul Hill

28th Mar

Valuation benchmarks wrt those stocks discussed

BnB

The analysis of Norman Broadbent is completely wrong. This is not a market recovery play - it's a business turnaround. Look how badly it was performing during the good times. Latest figures are an improvement but £300k PBT on £12.3m revenue is shockingly bad. I would look for approx £1m of PBT on those revenues in a fancy headhunter. And that would only give you the current market cap of £6m on an industry-typical EV/EBIDA of 6x. Can they improve profit further? Yes. but, operating leverage is low in recruitment because so much of the GP goes into commission payments, so it's hard to raise profit without substantially raising revenue. And that's going to take a lot of hard work. Additionally, small scale means that revenues are reliant on one of two rainmakers, greatly increasing risk. I met and was unimpressed by previous management and, although the new board are having a positive effect, I wouldn't go near this one given the value available elsewhere in the sector for a far superior risk/reward..

Many thanks for the #NBB insights. That's very helpful

whatmore1951

Paul, what happened to the sessions with Justin?

David Wordsworth

29th Mar

BT (LON:BT.A) Sorry Paul, but what value (if at all) would BT have if it sold OpenReach? Is it then not still a chronically underperforming telecom without any infrastructure resource?

Great question David.

Here's what was written back in 2021 when the Openreach sale was first seriously considered.

"The hope has to be that infrastructure attracts a higher valuation multiple than the rest of the business. Encouragingly, there is precedent. When Spain's Telefónica recently sold mobile towers in Europe and Latin America to American Tower Corporation, the €7.7 billion ($9.3 billion) transaction fee valued them at about 30.5 times their annual operating income. Applying the same multiple to Openreach would make it worth about £35 billion ($48.9 billion).

That is probably unrealistic given the different nature of Openreach and its various regulatory and investment challenges. A better point of comparison could be FiberCop, the fixed-line network that Telecom Italia is divesting. The planned €1.8 billion ($2.2 billion) sale of a 37.5% stake in that business to KKR, an investment fund, would value it at roughly 8.6 times basic earnings. On that basis, Openreach would be worth £24.6 billion ($34.4 billion), or £11.4 billion ($15.9 billion) more than the whole of BT."

Comparative valuations however have certainly fallen over the past 2-3 years.

https://www.lightreading.com/f...

I believe Justin wanted to branch out on his own.

30th Mar

BT (LON:BT.A) Thanks for the reply, Paul. Seems the investment case for BT largely hinges on a mooted sale of OpenReach- not for me I think!
Have a lovely Easter!

Agreed David. In fact Zegona Communications (LON:ZEG) is in the process of buying Vodafone Spain for €5.0 billion, equivalent to an adjusted EBITDA multiple of only 3.9x.

In comparison at 110p, BT currently trades on 3.7x EV/EBITDA.

Interview. John Hughman & I highlight 16 stock ideas. Happy Easter everyone

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Paul Hill

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