I’m sure we are all glad to see the back of 2020 but how do we think 2021 will shape up? We are out of the EU and thus far our ports seem to be havens of tranquillity. The Covid vaccines have arrived, greeted by confusion over whether our expert team’s suggested gap between the first and second doses will work. I also read that India already has 50m doses of the Oxford/Astra Zeneca vaccine in stock, manufactured under licence in India. That leaves me scratching my head! It seems to me the only time things go really smoothly in all of this is when the military is put in charge of a project. Boris may as well give them the whole exercise to run. As it is, the vaccination programme is going to extend well into the summer before it is completed and that is assuming the extended dosage gap does not impact the efficacy of the Pfizer vaccine, a delay which has not been tested.
Nevertheless, the vaccines do provide a light at the end of the tunnel and the equity market is opening the year in relatively buoyant mood. As we have been saying for some time, the UK market is significantly undervalued versus its major peers and, with a Brexit deal done we are likely to see overseas predatory interest in our companies increase further, particularly from the US. Indeed, as the year opens, a bid has already landed on the doorstep of Entain, the FTSE 100 gambling giant and owner of Ladbrokes. We expect this to be the first of many this year, a trend which will help the UK market close the discount to its peers.
Once we eventually look clearly beyond Covid, there is a wall of consumer cash, both here and in the US, waiting to be spent. Household savings have increased massively throughout the Covid period and just need the confidence candle to be lit. That said, Covid has removed and/or interrupted many supply chains and we may well find that demand is unsatisfied in many areas. That will lead to inflation to some degree and, as we have suggested previously, governments may be happy to run their economies a bit hot for some while to inflate away some of the mountain of debt that has been built over the course of the last year. A little inflation is good for equities. In short, we expect this to be a better year.
And so, here are our individual naps for 2021:
KISTOS PLC (KIST.LSE) – Russell
Following last year’s successful gamble with Hornby I thought I’d try another. Back in 2015 Andrew Austin brought his RockRose Energy to the market at 50p per share. The rockrose is a plant that thrives on neglect. A tough little cookie that survives heat, strong winds, salt spray and drought. Not that Austin neglected his RockRose. He tended it well and proved a phenomenal deal maker as he built RockRose into a highly successful North Sea oil business before selling it last year to Viaro Energy at a price of 1830p per share. Original investors who stayed the course would have multiplied their money almost 37 times over the five years of Rockrose’s public life. In fact, just the dividend income received over that period would have covered the initial outlay several times over.
The Greek name for the rockrose is Kistos and Andrew Austin has returned to the market with his new vehicle which carries just that name. He is no longer looking at black oil, recognising that its place in society has been undermined by the eco-agenda. Kistos has been set up to take advantage of that energy transition agenda to move away from fossil fuels and into more eco-friendly energy forms. It will be looking at Gas, Energy Storage, Infrastructure and Energy Generation and, in particular, will be looking at repurposing old assets for the new world.
The company is currently a cash shell sitting on £36m from pre and IPO fund-raisings. The shares have moved up strongly since coming to market at the end of November and now sit at 165p where the market cap is around £66m. You are, therefore, paying a hefty 83% premium to the cash for a share in the business. However, a number of old RockRose institutions were unable to subscribe for Kistos as their remits prevent them from investing in cash shells. These are likely to come on board once the first deal is done and Kistos can display some assets. I suspect this is not far away. I am sure Austin’s very experienced board will have been hard at work sifting through a pipeline of opportunities for some time now.
As with any cash shell the shares are highly speculative and should only be considered by those with a risk profile to accommodate such an investment. However, if Austin is able to display the same deal-making ability in his new venture as he did with RockRose, it will prove an exciting ride.
Audioboom (BOOM.LSE) – Stuart
This smallcap Podcast hosting business is the largest left standing from a flurry of bids for its peers. They have all been acquired on much higher multiples than that which Audioboom currently trades on.
Wondery was bought by Amazon for $300m whilst Audioboom’s market cap is just £48m even though Boom is globally well ahead of Wondery with 83m monthly downloads v 60m.
PE multiples tend to be very high in this sector and not that relevant. However, turnover grew 20% from £9.84m to £11.83m and losses were reduced to £2m from £2.77m.
The Chairman has been a constant buyer throughout December and now holds 2%+.
I feel that the market has fundamentally undervalued this company and a re-rating or a bid approach is the most likely outcome. For those with a high-risk profile BOOM looks a good bet at 258p.
Pinterest (PINS.NYS) – Neil
The shares were up an impressive 270% in 2020 but I feel there is still more to come. COVID-19 has accelerated the use of online, something I don’t see changing. Pinterest, like other social media and internet search platforms, makes most of its money from advertising. Pinterest is growing its monthly active users at a consistent pace. With c. 440 million active users, compared to Facebook c. 2.7 billion there is still a lot of room for growth. Pinterest announced a tie up last May with Shopify. The app enables Shopify’s merchants to upload catalogues to the Pinterest platform, another interesting avenue for the company.
Pinterest, with a market capitalisation of c. $40 billion is small in comparison with its US peers, meaning it may be volatile but I still feel 2021 will be good for the company. At US$ 66, the shares are attractive.
It just remains to wish you all a Happy, Healthy (above all else) and Prosperous 2021.
Russell Dobbs FCSI
Chartered Wealth Manager