Good morning!


Crawshaw (LON:CRAW)

Share price: 63.7p (up 1.9% today)
No. shares: 78.8m
Market Cap: £50.2m

AGM trading & strategic update - LFL sales growth for the 8 weeks since 23 Apr 2015 is today reported at +2.3%. That's OK, but not madly exciting. The language in today's announcement sounds a little over the top to me, given that the sales increase is only in line with the rise in average household incomes.

The integration of the Gabbotts Farm stores is "progressing very well". Although the price paid for Gabbotts was only £3.9m, for 11 shops, so about £355k for each shop. This threw into sharp relief just how expensive Crawshaws is - with 39 shops now (including the 11 Gabbotts ones) and a £50.2m market cap, that values each Crawshaws shop at just under £1.3m.

Or looking at it another way, if you take off the 11 Gabbotts shops at cost, that would value the other 28 Crawshaws shops at £1.65m each! So the stock market is valuing each Crawshaws unit at about 4.6 times what Crawshaws just paid for a competitor business.

My opinion - to my mind, Crawshaws as it stands now, is probably worth something like £10-20m. The additional £30-40m value being put on the shares is all about future expectations - the stock market is anticipating the business growing to maybe 5 times its current size, and there is also a management premium - for Richard Rose, the Chairman, and the CEO who joined Crawshaws from a senior role at Lidl.

There's no doubt it's an interesting roll-out, with high quality management, but the price is looking very toppy - investors are being asked to pay up-front for several years' growth. Bear in mind also that there's cut-throat (geddit?!) competition from the supermarkets, who are not likely to sit back and do nothing as Crawshaws increasingly eats their lunch.

Overall, I can see the appeal of the bull case, but would just raise a question mark over whether the share price is getting ahead of itself? There again, we're in a bull market, which has pockets of euphoria, so in this kind of environment growth companies do achieve high ratings. The trouble is, if unforeseen problems emerge, and/or if the stock market generally takes a bath, then shares with very rich ratings are often the biggest fallers.

So it's the sort of stock that…

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