How to deal with volatility and Trading Alert: Aston Martin
14th May 2020 |
Originally published under Growth Stock Network on 14th May 2020.
Firstly, I just want to cover off on the urgent alert about Hyve Group on Tuesday.
As you will have seen, I recommended to remove the trailing stop/loss order I had initially recommended with the stock.
There’s a couple of reasons for this.
- The market is currently in a heightened state of fear here in the UK and that’s causing some short-term volatility this week.
- Hyve came out with a batch of announcements about a capital raising, share consolidation and the current trading environment, which has also seen extra volatility in the stock.
Let me be clear, my long-term view on the stock is that it will come out the other side of this crisis as good as it was before it all kicked off.
While the short-term situation is precarious, its announcements from last week are actually positive. What’s important to note is that it has a multi-country foothold in the events market.
That means it may see flow of revenues in the door again sooner rather than later as various countries start to unwind lockdowns and social restrictions. Albeit trading might not return to normal for some time, my view is that it will ultimately return to normal.
And that presents huge upside for the company if that’s the case. While it’s difficult to envisage now, the world might have changed a little out of this crisis, but it won’t be as radical or dramatic as you might believe were you to watch the news 24 hours a day.
Firstly, the company has raised £126.6 million following a rights issue.
It’s also agreed with its lenders to waive any financial covenants until March 2022 (subject to inclusion of a basic liquidity test).
It’s also agreed additional liquidity by deferring loan amortisation payments of £35 million until maturity in December 2023.
These three steps provide a twoy-ear runway for Hyve to return to a functional operational level post-crisis. I think that’s loads of time and that the company will achieve this. I think the world will get back to a functional operational level in that time.
So for us, this solidifies the long view we have on the company. And it also tells us its banking partners and its investors also see the bigger picture. As it doesn’t seem like there were any hassles in extending the covenants and no trouble in raising £126.6 million in what’s considered to be the biggest economic crisis since the Great Depression.
What you will also see soon is a share consolidation where the company will consolidate its units on a 10-for-1 ratio.
That means if you have 1,000 HYVE shares currently, after the consolidation you will have 100. This doesn’t mean your holding is diluted, a consolidation simply reduces the total number of shares on issue by the prescribed ratio.
You will then also see a change in the trading price as the market price reflects the number of shares on issue relative to the company valuation.
But again, my long-term view on Hyve remains positive. But I don’t want you to be stopped out of the stock due to current volatility. Hence I decided to remove the trailing stop/loss for the time being.
Aston Martin changes too…
Also I’m going to recommend the same thing for Aston Martin Lagonda (LSE:AML), again to ensure that we’re not stopped out of the position with current volatility which I think is somewhat unwarranted right now.
The reason is that I continue to see the Chinese market being a considerable opportunity for the business. While it might be hard to see, I saw data today that explained, “Foreign direct investment (FDI) into the Chinese mainland expanded 11.8 percent year on year to 70.36 billion yuan in April…”
Note that this is data from the Chinese Ministry of Commerce. So take it with a little pinch of salt, but at the same time don’t believe these are just numbers plucked from thin air either.
Make no mistake, people suggesting the reversing of globalisation from this crisis I believe to be out-and-out wrong. I don’t think this will slow globalisation at all, but it may just change how we perceive it.
But the Chinese market is too big, and too awash with consumers and money for economies to ignore. And I think the car market in particular, the luxury brand market, will really hone in on China and maximise its efforts there to grab consumer spending.
Also, it’s likely sports will return to our screens soon. And Formula 1 is one of those sports that’s desperate to get back on to global screens – the value in broadcasting is huge to Liberty Media (owner of F1).
It will happily get racing without fans if it means it can still get eyes on the races, sponsorship money flowing and the rolling circus back into gear.
Don’t forget that in the 2021 Formula One season, which we expect to see run in full from March 2021, will see Aston Martin plastered all over a “works” team which will add to the brand strength and value.
But as I say, the market is awash with volatility right now and we don’t want to exit the stock unnecessarily.
Therefore, I’m recommending you remove the trailing stop/loss orders on Aston Martin also, but continue to see big upside potential for this turnaround British marque.
Also, just a reminder that our vision here is long-term investing into great UK-listed small-cap stocks. That’s where I see huge potential for investors.
But right now, as the markets are again stuttering, it’s a reminder that volatility is rife, and it can really shake investors about. If you’ve got the right mindset, the right approach to building your positions and the right timeframe, a lot of this is just white noise and an opportunity to dollar-cost average your entry prices and build a solid long-term portfolio.
It’s scary still, risky, and tough to see wild price swings. But with the right plan, you’ll quickly see the opportunities this market is presenting to investors with that long-term view.
If you’ve got any question on our stocks or about how to properly invest in times like this and strategies that you want to know more about, please make sure to write in and let me know – sam@southbankresearch.com – as if you’ve got a question, there’s a good chance others will too and we can cover off on them in future updates.
Regards,
Sam Volkering
Editor, Growth Stock Network
