Small Cap Value Report (8 Dec 2014) - CUP, GAW

8th Dec '14 by Paul Scott

7 comments 11048 reads

Good morning! It's quiet for results today, so a quick whizz through what little there is.

Cupid (LON:CUP)

This dating website group has thrown in the towel, and annouces today that it is selling its remaining business and turning itself into a cash shell.

The company says it will become a "well capitalised cash shell with approximately £18m...". I assume that means after the company has received the deferred consideration from the previous disposal, which has been accelerated in return for a partial write-off.

At 19p per share currently, the market cap is about 25% below that £18m figure, so if you're prepared to hold the shares for a year, and assuming there is no other bad news in 2015, then there could be a bit of upside from here. It also hinges on management doing something sensible with the cash shell.

I've never liked this company, it had a bad smell around it. Also, it simply didn't look a viable business at all in the last year. It's amazing how quickly things change with internet-based businesses. In the case of Cupid, it seems to have been a rapid switch of customers to mobile devices which scuppered Cupid's traditional websites, and they seem to have left it too late to catch up.

So maybe as investors we should reconsider paying high multiples for innovative or technology-based companies, and instead put them on price discounts to reflect their brief life cycle?

Games Workshop (LON:GAW)

Shares in this quirky retailer of action figures are down about 6% today to 510p, on a mild profit warning. This means reported operating profit for H1 will be about £1m lower than last year's H1, although the company points out that this is due to adverse currency movements.

Broker consensus forecast is for 38.7p EPS this year ending 1 Jun 2015. So it now looks as if the company might achieve perhaps 30-35p EPS, by my back of the envelope calculations. Therefore at 510p they are certainly not screaming cheap to me.

The dividend yield is attractive here, but only just covered about 1 time by earnings, so in other words it's not necessarily sustainable at that level perhaps?

I can't get excited about this company. Where is the growth going to come from? Will trading improve? I'm not sure. It doesn't appeal at a PER now…

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FREng

8th Dec '14

Paul

Any views on Jelf (LON:JLF) results today and on their plan to incentivise management to sell the company by giving them 25% of the premium?

Audioboom (LON:BOOM) price has dropped 14% this morning - no visible news ...

Henry Walpole

Hi Paul, are you still maintaining your placingwatch website? If so I wondered if you had any thoughts on the APC placing today? As a holder I was pretty miffed at the dilution and the discount as well no Open offer. The fact the funds are just for working capital makes it even worse!

Mark Carter

There has been a lot of controvesy about Cupid (LON:CUP) in the past, with allegations that there were people paid to feign interest in free registrants in order to induce them to take out a subscription. As far as I recall, the company has vigorously denied this, although it did call in auditors to assess its "business practises".

Cupid (LON:CUP) has been a bit of a joke on the interwebs, with trolls setting up fake IDs to bait responses. The fake IDs usually set up personnas of fat ugly men with health, hygene and personality problems. The respondents were completely unphased by all this. It was a good laugh for the trolls, and they were keen publicise the interactions; although it seems that they were unaware of the true dynamics of the site.

There's a moral here: never invest in companies that you think are consumer (or investor) scams. As sure as eggs is eggs, the moment you invest is the moment that the company will go into freefall from some controversy. Companies like: HomeServe (LON:HSV), CPPGroup (LON:CPP) immediately spring to mind, and there are many others to choose from.

Another company worth mentioning is International Personal Finance (LON:IPF), International Personal Finance, a company that does door-to-door loans in Poland, Czech Republic, and suchlike. Yikes! The very notion sends a chill down my spine. It was a top holding by a top-rated growth fund manager (I don't remember who it was). I remember thinking at the time that he was likely playing with matches, though.

If you had bought International Personal Finance (LON:IPF) 1 year ago, you would be down 20%. In December 2013, it posted an RNS stating that "the Polish Office of Consumer Protection and Competition stating that the way it calculates APR amounts to a collective infringement of consumer interests and subjecting it to a fine of around PLN 12,000,000 (approx. £2,400,000)."

And that's another lesson: never, ever, invest a company where your judgement says "avoid", regardless of the pedigree of a bull. As Jim Chanos reminds us, plenty of value traps have famous investors backing them. The flipside of that is that if a top fund manager is bearish on a stock, then you should probably consider the matter seriously.

Ramridge

And that's another lesson: never, ever, invest a company where your judgement says "avoid",

I think you need to consider both sides of the coin. Instances when you followed your judgement to avoid investing and you were proved correct, and also where you instinct told you to avoid but the shares went on to become big winners if not multibaggers. Basically a ratio of potential winnings/ potential losses. Let's call it Instinct Index. In my case it would probably still be less than 1. But short of keeping a daily diary, can't say for certain.

Mark Simpson

9th Dec '14

Cupid (LON:CUP) has been a bit of a joke on the interwebs, with trolls setting up fake IDs to bait responses. The fake IDs usually set up personnas of fat ugly men with health, hygene and personality problems. The respondents were completely unphased by all this. It was a good laugh for the trolls, and they were keen publicise the interactions; although it seems that they were unaware of the true dynamics of the site.

Maybe trolls were doing this as well but the one I'm aware of is John Hempton of Bronte Capital via his blog. He did with the specific intention of finding out the true dynamics of the site. For me it was a great reminder of how good money mangers think. While a lot of people simply trade on rumours or look for second hand info it's often very easy these days to become a customer of a business and test out first-hand how businesses treat customers and if rumours are true. All it takes is a little bit of time and a little bit of ingenuity.

Danger, yes, it's quite possible that I was misremembering who was doing what.

There are plenty of sites dedicated to OK Cupid trolling, though, having such gems as "adulthood means getting so black out drunk on a Wednseday night that I stumble back to my apartment with one of my guy friends who paid for all of our shots and we pass out in my bed and the next morning I wake up and wonder why I'm wet".

Some people like posting to the Quindell boards, others to OK Cupid.

Me?

I put on my robe and wizard hat.

;)

Small Cap Value Report (8 Dec 2014) - CUP, GAW

Cupid (LON:CUP)

Games Workshop (LON:GAW)

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Paul Scott

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