Small Cap Value Report (8 Jan 2015) - CRAW, ITQ, FBT

8th Jan '15 by Paul Scott

15 comments 15524 reads

Good morning! It's that time of day when I think to myself, right, better turn off Twitter and stop ticker-watching, and actually write something!

Incidentally, I updated yesterday's report in the evening for the trading updates from;

Majestic Wine (LON:MJW)
Escher Group (LON:ESCH)
Topps Tiles (LON:TPT)

As well as previous comments on Boohoo.Com (LON:BOO)

So to review yesterday's full report please click here.

Crawshaw (LON:CRAW)

Share price: 48.25p
No. shares: 79.6m
Market Cap: £38.4m

Trading update - as this small butchers chain has put out a Christmas trading update, I'm guessing that this must be their peak trading period - presumably driven by sales of turkey, and all the other meat we feast on over the festive season.

It's a bit of a mixed bag. The key point is that trading over the 9 weeks to 28 Dec 2014 was "in line with management expectations". That's good. However, LFL sales were actually down 3%, but they say this was expected, due to exceptionally strong sales last year (up 21%).

Gross margin improved by 100 basis points, which offset the fall in sales, so positive there.

Year to date LFL sales are up 6%, but the growth rate has slowed throughout the year, and is now negative.

Valuation - we already know why this share looks so expensive in the short term - it's because the valuation is anticipating a substantial roll-out of new stores. The company is, I believe, intending to open 10 new stores in year 1, then 20 new stores annually thereafter. They won't find that easy though - I've done a retail roll-out myself, of similar scale, and it's a nightmare to manage, but it can be done.

So really, it doesn't make a lot of sense to look at the near term figures for PER, etc. However, for the sake of completeness, the house broker has today confirmed its estimate of £1.0m profit (EPS 1.1p) for the current year, which is about to end shortly, on 31 Jan 2015. That gives a PER of 43.4.

The broker is then forecasting a fall in profit next year, to only £0.6m (EPS 0.6p), due to up-front costs needed in infrastructure to support the future store roll-out plan.…

Unlock with Email

Unlock with Google

Already have an account?
Login here

khalidf

8th Jan '15

Any comments on audioboom? Sounds like a fairly significant play in Africa..

Paul Scott

Hi khalidf,

I only usually comment on contract win type announcements if companies specify what their financial impact will be. If companies don't say what the financial impact will be, then it almost certainly means they either don't know, or the figures are not material to future profit expectations.

In the case of Audioboom (LON:BOOM) I had a nice speculation on it last year, making a handsome profit, but after having lunch with a bear on the stock, I began to realise that the valuation is utterly bonkers.

It's a nice App, I use it myself, but there are a lot of big question marks over whether this thing can ever make any money. It's the type of stock that will put out endless breathlessly excited RNSs, but then when you read the results, you'll stare at the page and wonder why there's hardly any turnover, but heavy losses every year!

So for me, I've had my fun with it, it's nice to catch a speculative wave on something that doubles or more, but it's also important not to fall in love with the story, and continue holding whilst they gradually drift back down again, as this type of stock usually does.

Regards, Paul.

Thanks for your feedback, Paul. Much appreciated as always...

pep

Although a bit off-topic, I meant to bring this to your attention earlier, but better late than never, as it illustrates the increasingly Harry Potterish esotericism creeping into the world of the RNS.

30 December 2014
RNS Reach

ServicePower Technologies Plc
("ServicePower" or the "Company")

ServicePower recognised in Gartner report

ServicePower Technologies Plc (AIM: SVR), a market leader in field management software, is pleased to announce that it has been recognised by Gartner as a Visionary in its 2014 Magic Quadrant for Field Service Management ("FSM"), as published on 22 December 2014.

ServicePower has improved its positioning in the quadrant from 'Niche Players' to 'Visionaries'. According to Gartner, 'Visionaries' display technology or business model innovation, including the Nexus of Forces, and may influence or will soon influence, the direction of the FSM market.

Marne Martin, CEO of ServicePower, commented: ServicePower has worked very hard this past year on its products and team and it is fantastic to be recognised as a Visionary on the Magic Quadrant for Field Service. We believe it is testament to the quality and strength of our platform and of our roadmap for the future of Field Service Management.

foxy1959

Paul, re CRAW, surely there has not been a fall in sales? LFL sales are up 6% thus far on the year but of course there have been a number of new store openings since last year. The LFL comparison was against a bumper 21% rise in the same 9 week period last year

Ramridge

Hi pep - ServicePower Technologies (LON:SVR) Yes, I saw this yesterday and my quick reaction was that being visionary doesn't put bread on the table in the near term. I quickly put this in my mental dustbin and moved on.

Hi foxy1959,

Indeed, I covered all those points you mention in the report. Maybe re-read that section?

What I was trying to say near the end, was that the trend is slowing. i.e. if LFL sales are up 6% YTD , but the most recent figures are down 3%, then the trend has changed from being strongly up earlier in the year, to starting to decline in the last 3 months, but the total for the year is still up 6%.

All the figures I quoted are LFL sales figures (like for like - so stripping out the impact of any new or closed stores).

Regards, Paul.

Splode

I have been in CRAW for nearly 1½ years since when the SP has risen 6-fold and value metrics have dropped substantially, but I am still half in. The key is whether Mr Collett will be able to pace the roll-out self-sustainably - it may be tougher than he did with Lidl where the value proposition was (is) so compelling.

Agree LFL sales growth slowing but growth very much on the up with several new shops last year and ten more this year. I guess if they had a massive nine weeks last Christmas there is just so much you can sell per shop. I like rising margins and the roll out and hope for £2 in 3-4 years

shanklin100

Hi Paul

Re CRAW...

My opinion - this investment is all about the roll-out of new stores - and remember they already have the cash in the bank to do about 20. So investors will need to be patient as the new (ex-Lidl) CEO starts opening those new stores, and much higher profit should then flow through.

Only a small point but my understanding is that the process of finding new stores, fitting out and opening them is ongoing. Obviously, beyond the factory shop, nothing has happened recently on this front CRAW believe justifies an announcement, but this process is not paused waiting for the new CEO to tick whatever boxes might need ticking in some bureaucratic approval process..

HTH. Cheers, Martin

johnrosier

I have just posted this on my website as part of my New Year Review of all my holdings.

Crawshaw Group (Aim All Share, Market capitalisation: £37.0m, 47p and 3.6% of JIC Portfolio); I posted on this earlier today following its Christmas trading statement and concluded that although profits will be in-line with expectations the market would be disappointed with the sales figure; as I write the stock is off around 9%.
This has been one of the best performing stocks in the JIC Portfolio having first bought at 13p just 14 months ago. You can see all my posts on the stock on the column on the right but to recap why I like it;

It is excellently managed under the chairmanship of major shareholder Richard Rose, who in the past had had great success turning around Whittards, before selling it to private equity, and has seen strong growth in shareholder value at Booker, Anpario and AO.World where he is also chairman.

The Company has a strong business model which it intends to roll-out nationally; it currently has around 20 outlets and plans to increase this to 200 and as Rose recently said “if 200 why not 500?"

It has made a good appointment of Noel Collett as CEO who joins on March 1st. Collett seems to have the requisite skills given his previous position as Chief Operating Officer at Lidl UK where he oversaw the increase in stores from 200 to over 600.

It raised the finances to get the expansion underway in the middle of last year through a successful share placing which bought some new supportive shareholders on board.

A few years out this stock could be a £200m+ annual sales business with strong cash flow and dividends; I feel confident that the new CEO and Richard Rose can deliver.

Conclusion: I have to be sure that I have not fallen in love with the stock and as a former colleague of mine tweeted yesterday “the only reason to buy a stock is to make money. They are not part of your family!" So would I buy now if I didn't own it? The answer is yes but probably not the current 4.0% of my portfolio; just 2.0% as I think there is a risk that in the short term it may be dead money; it really needed a trading statement that sparked upgrades. Hopefully, once the new CEO gets stuck into the business and communicates his plans, shareholders may start to focus on the longer term prize of a substantially larger and more profitable business. Not so Happy a Holder as I was!

John,

That's an intelligent & balanced review of Crawshaw (LON:CRAW) from you - good stuff!

Regards, Paul.

narp

9th Jan '15

John,

Is your conclusion telling you to reduce your holding to 2%?

Difficult one but I think after yesterday's fall, not at the moment. Could of course go lower but not sure the downside is worth reducing position at this level.

10th Jan '15

CRAW seem to be generating cash, £1m in the first half at which point they had £10m in cash for the roll out, now over 25% of the market cap. I think on EV/cash flow terms the valuation looks much more attractive than first impressions

Small Cap Value Report (8 Jan 2015) - CRAW, ITQ, FBT

Crawshaw (LON:CRAW)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

15 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...