Small Cap Value Report (Wed 12 Jul 2017) - FUL, CALL, EVE

Wednesday, Jul 12 2017 by
54

Good afternoon, it's Paul here.

I'm running late again, sorry about that - I appreciate it must be annoying to find only a placeholder post, when you're expecting a full post. I'm on the case now properly, so will update this article this afternoon.


Falling knives

I see that the car crash at Carillion (LON:CLLN) shows no sign of abating. There's been an incredible destruction of shareholder value there, with the share price now down to only 70p (it was 300p in Sep 2016). Therefore it's come into my universe of small caps now.

I really don't know where to start, in terms of assessing Carillion. A quick look at its balance sheet shows that it's dominated by goodwill. Strip that out, and the NTAV is massively negative. So that rules it out for me (before or after the recent profit warning).

Falling knives generally can be a tempting, but easy way to incur losses. I've done a lot of these over the years, so have worked out which ones work, and which ones don't. Basically it's all down to the balance sheet. If a company reports bad news, but has a strong, cash-rich balance sheet, then over time it tends to recover. That stands to reason, because management are not distracted by a fundraising or disposals in order to stay solvent. Instead, they can just get on with fixing whatever issues have caused the profit warning to happen.

So for me, when assessing whether to buy a falling knife, the no.1 consideration is that it must have a strong and stable (!!) balance sheet, with no requirement for any fundraising. Carillion clearly fails that test.

The other key factor for me, is whether the problems which caused a share price to collapse are fixable. If it's just something that's a one-off, ring-fenced problem, then I would consider buying the shares after bad news. If it's a bigger, more serious problem, then I'd steer clear. That's a judgement call, so not something that could be computer modelled.

It would be interesting to revisit Stockopedia's awesome profit warning study, and introduce a balance sheet test. Would that improve the results, I wonder?


Contract companies

Carillion is yet another example of a company dealing with complex, large contracts, has gone disastrously wrong. This happens over & over again…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
54 thumbs up
0 thumbs down
Share this post with friends



The Fulham Shore PLC is engaged in the management and operation of The Real Greek, Franco Manca and Bukowski restaurants in the United Kingdom. The Real Greek food centre serves dishes of Greece and the Eastern Mediterranean. Franco Manca serves Neapolitan sourdough pizza, which is baked in a wood burning brick oven. Bukowski is a London-based, charcoal-grill restaurant and bar, serving breakfasts, burgers and grills. The Company operates 45 restaurants, comprising 32 Franco Manca, 12 The Real Greek, and one Bukowski Grill franchise in Soho. The Company’s subsidiaries include Kefi Limited, FM6 Limited and Souvlaki & Bar Limited. more »

LSE Price
13.13p
Change
 
Mkt Cap (£m)
75.0
P/E (fwd)
16.3
Yield (fwd)
n/a

Cloudcall Group plc is a United Kingdom-based holding company. The Company and its subsidiaries are engaged in software and unified communications business. The Company provides a suite of cloud-based integrated software and telephony products and services under the name cloud. The Company is a full-service communication provider. The Company designs, develops and operates integrated communication services for customer relationship management (CRM) systems. The Company's CloudCall portal enables to manage organization’s call profiles, configures all settings and manages user and service accounts and access real time activity reports and call recordings. Its automatic call distribution (ACD) feature routes the callers directly to available team members in the organization. The Company’s subsidiaries include Cloudcall Ltd, Cloudcall BY. LLC and Cloudcall, Inc. more »

LSE Price
146.5p
Change
2.8%
Mkt Cap (£m)
28.6
P/E (fwd)
n/a
Yield (fwd)
n/a

eve Sleep PLC, formerly eve Sleep Limited, is an e-commerce company. The Company is focused on direct to consumer European sleep brand which designs and sells eve-branded mattresses and other sleep products. The Company has six products, including foam mattress, topper, pillow, sheets, protector and duvet. The Company’s foam mattress made are up of three layers: a base layer of high-density foam, which provides support and durability; a middle layer of open-celled foam, which encourages air flow; and a top layer of next-generation memory foam, which moulds around pressure points and then springs back once the pressure is released. The Company's protector product is made of 100% cotton and a Neotherm membrane. The Company’s sheets product offers unbeatable comfort and sublime softness. more »

LSE Price
95.5p
Change
 
Mkt Cap (£m)
132.1
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is Fulham Shore fundamentally strong or weak? Find out More »


59 Comments on this Article show/hide all

Paul Scott 13th Jul 40 of 59

In reply to paraic84, post #23

Hi paraic84,

Thanks (re post 23). I was not aware of that.

Regards, Paul.

| Link | Share
ricky65 13th Jul 41 of 59
1

In reply to Paul Scott, post #37

Hi Paul

Thanks for the reply.

You and "our Graham" (lol) make a compelling case for Game Digital (LON:GMD). £69m cash, no borrowings, short leases. As a special situation I can see the attraction. I've had success with special situations recently (Molins (LON:MLIN), Hargreaves Services (LON:HSP) ).

It's clear that Ashley sees potential here somewhere. Sky article says he "is thought to see opportunities in Game's presence in the fast-growing e-sports market". In my day job I'm a software developer and occasionally work on games. I can only see esports growing in popularity. I was tempted in buying some shares of the esports company Gfinity (LON:GFIN) a few months ago but was put off as it has never made a profit. That turned out to be a mistake as the shares have nearly doubled since then.

As a Minervini fan it's hard to buy a chart like this. It fails all his Trend Template criteria. I do feel however that it's worth a punt. Besides, theres a gap to fill to 32p!

Kind regards

Ricky

| Link | Share | 1 reply
InvestedGeordie 13th Jul 42 of 59
3

In reply to AstonGirl, post #39

If anyone could give old Mike a run for his money - our Paul could!

DANCE OFF: Ashley Vs Scott!

| Link | Share
veganvader 13th Jul 43 of 59

Personally I do not like Franco Manca pizzas much especially the base but I really like the restaurant and the feel of it. My Muswell Hill branch is moderately busy but the one in Canary Wharf is rammed to the rafters. If you don't get there by 11:55 for lunch expect a long wait. 

| Link | Share
vik2001 13th Jul 44 of 59
1

Paul well done on game. especially when it was seen as a bargepole stock

| Link | Share | 1 reply
paraic84 13th Jul 45 of 59
1

On eve Sleep (LON:EVE) I previously posted a table showing competitors with a similar business model: http://www.stockopedia.com/content/ipo-alert-eve-sleep-185583/?comment=8#8

| Link | Share
Paul Scott 14th Jul 46 of 59
2

In reply to ricky65, post #41

Hi ricky65,

As a Minervini fan it's hard to buy a chart like this. It fails all his Trend Template criteria. I do feel however that it's worth a punt. Besides, theres a gap to fill to 32p!


I'm also a Minervini fan, and I learned so much from his book.

I think it's important to remember that Minervini's approach is all about finding multi-baggers, and in a bull market, it works brilliantly.

But there are loads of other successful investing approaches too. We don't have to limit ourselves to JUST doing Minervini-style stocks. I like doing a bit of everything - anything that works basically!

GMD seems to me one of the (potentially) best special situations (i.e. value-focused) things I've seen in ages. Mike Ashley taking out a big chunk of the overhand is great. I wonder if he's looking ahead to gaming as a sport, and utilising spare space in DEB and SPD perhaps?

I'm surprised the share price hasn't risen more actually, but there might still be others selling - I think Hargreave Hale were dumping stock recently?

For me, I don't intend holding GMD forever. I do see a chance that it might rise to 50-100p, where I'd be happy to sell up & move on.

Regards, Paul.

| Link | Share | 1 reply
Paul Scott 14th Jul 47 of 59
1

In reply to vik2001, post #44

Hi vik,

It's the balance sheet again - that's the key thing. Very few investors/punters actually check the figures you know. That's where you can gain a terrific competitive advantage I think, especially after bad news.

Who cares what market sentiment is, when the company is soundly financed, as is the case with Game Digital (LON:GMD) ? I bet you hardly any fund managers or PIs have properly crunched the numbers! It's not financially distressed at all, but is dirt cheap That's the way I see it anyway. But as always, nobody really knows for sure, unless you are an insider.

Regards, Paul.

| Link | Share
vik2001 14th Jul 48 of 59
1

why did he take such a interest in Game? The one part of Game Digital's business that might appeal to Ashley is its exposure to the fast-growing eSports market, where people do battle in cyberspace playing conventional sports like football.Sports Direct hasn't commented on the interest, but there could be some overlap between eSports fans and its own customers who buy soccer boots and replica t-shirts.
whatever the reason it doesn't always work out for Ashley like at debenhams or Tescos... or even the casinos lol

| Link | Share
darlocst 14th Jul 49 of 59
5

Mike Ashley's investment's in the likes of Debenhams (LON:DEB), French Connection (LON:FCCN), etc so far have been crap. It was reported he lost £200m+ spreadbetting on HBOS back in 2008. He comes across as a (uber rich) mug punter. Given his track record I took it as a negative that he'd picked up a large stake in £GMD

| Link | Share
TMFMayn 14th Jul 50 of 59
5

FUL

??Interesting that the Allenby note…

http://www.allenbycapital.com/research/research-fulham_16_1316430210.pdf

…states the average Franco Manca (FM) site earned revenue of £1,050k during FY 2017, which was down 7.0% on the £1,129k for FY 2016.

I have worked out the H1/H2 splits for FM... and H2 2016 was £1,158k, H1 2017 was £1,120k and H2 2017 was £977k. I have ignored the H1 2016 figure as FM was part-owned during that period.

Anyway, the trend is not great, and Allenby appears somewhat bold by predicting average revenue per FM site of £1,085k for FY 2018 (+11% on the H2 2017 of £977k) and then £1,100k for FY 2019.

| Link | Share | 2 replies
JohnEustace 14th Jul 51 of 59
1

In reply to TMFMayn, post #50

Fulham Shore (LON:FUL) play it straight in only allocating genuine pre-opening costs to start-up expenses, so given their rate of opening new sites I would expect some ramp-up effect in revenues for those new sites.

| Link | Share
dfs12 14th Jul 52 of 59
2

I hold Fulham Shore (LON:FUL) shares and have eaten at 2 FM stores Westfield and Southampton (and viewed but not eaten at Brighton). The stores were fine... clean and tidy and serving good pizza. To me they look extremely similar to Pizza Express but cheaper and better pizza.

Generally I hold extremely boring shares... this is one of my very few higher risk investments. For me this share has true multi bag potential.

The stores I have seen could all have been busier but were doing ok. And from my visit a month ago to Southampton I noticed that the Real Greek (next to FM) was doing good trade. The same was the case at Westfield (where I visited about 3 months ago). When the update came out yesterday I saw that the management view reflected this... that they see The Real Greek as a surprising success outside London. This could be good news as TRG is much higher price and better margins. In Southampton on a Sat night it looked like young dating couples were looking for a more exciting option than a pizza. So TRG was filling that space quite well. Over the last year or so it seemed that the story with Fulham Shore (LON:FUL) was Franco Manca - but maybe we should all be getting excited by TRG instead.

| Link | Share | 1 reply
ricky65 14th Jul 53 of 59
1

In reply to Paul Scott, post #46

I agree that there are lots of other successful investing approaches. I guess it’s personal taste on which you choose. Doing a bit of everything certainly works for you! Not all of us have your skill in being able to combine multiple approaches. I adhere to Minervini’s strategy because it’s where I have had most success. There’s also the counter argument that it’s best to stick to one style and avoid “style drift”.

Back to Game Digital (LON:GMD)

I don’t see Hargreave Hale on the major shareholders list on Morning Star. http://investors.morningstar.com/ownership/shareholders-major.html?t=XLON:GMD®ion=GBR

There were a couple of holdings RNS yeterday and I see that Woodford is completely out now and Invesco nearly completely out too. Looks like they don’t see any value here.

I’m not sure about Ashley. Looking at his track record of share price destruction at Sports Direct over the last few years makes me wary.

You’ve called it well thus far so kudos. It will be interesting to see what happens!

Kind regards

Ricky

| Link | Share | 1 reply
Paul Scott 15th Jul 54 of 59
1

In reply to TMFMayn, post #50

Hi TMFMayn,

You said;

…states the average Franco Manca (FM) site earned revenue of £1,050k during FY 2017, which was down 7.0% on the £1,129k for FY 2016.


Quick query: have Allenby adjusted for new site openings during the year? Given that FM is opening so many new sites throughout the year, the average turnover of the whole estate would be meaningless - because new site openings part-way through the year would depress the average revenue figure to a considerable extent.

The average revenue per site would only make sense if calculated on an LFL basis - i.e. sites which have all been open for 2 complete years or more.

I haven't read the Allenby note in full yet, because I recently knocked over a glass of vodka + fanta (yes, classy, I know!!) onto it, and all the pages have stuck together.

Regards, Paul.

| Link | Share | 2 replies
Paul Scott 15th Jul 55 of 59
3

In reply to dfs12, post #52

Hi dfs12,

Interesting what you say about Fulham Shore (LON:FUL) smaller brand, The Real Greek.

Can't remember if I mentioned it before, but I mystery-shopped their new branch in Bournemouth recently. From the menu, it just looked like over-priced kebab shop food.

However, my experience was positive. What they've done is quite clever - taking fairly ordinary Greek-style food, and presenting it in a very attractive way - using 3-tier cake-stands to present the food on 3 levels, was a really innovative, and pleasing touch.

Also, I liked the way they scattered a mix of fresh herbs (I could identify coriander & dill) over the food, and wrapped some items in own-branded greaseproof paper. Little touches like that really did dress up quite ordinary food into seeming special.

Plus they serve my favourite Greek beer, Mythos. Service wasn't great, and only 1 member of staff out of a large team was actually Greek (I asked lots of questions). It's a new site though, and I got the impression that staff were still learning the ropes, so a bit chaotic, and they looked harrassed - which unsettles customers.

On a sunny day, it was busy, with myself & others basking in 30pC sunshine on the day I visited, on their pleasant terrace. It actually reminded me of being on holiday in Greece, drinking Mythos in the sunshine, whilst enjoying OK greek-style food. So I think this format could actually have legs.

Also, I noted that TRG branch in Bou'mth is literally just over the road from the same company's Franco Manco site. Therefore, the opportunity to pool staff, and switch people from one site to another at busy times, is a very useful advantage.

Regards, Paul.

| Link | Share
Paul Scott 15th Jul 56 of 59
2

In reply to ricky65, post #53

Hi Ricky,

Not all of us have your skill in being able to combine multiple approaches. I adhere to Minervini’s strategy because it’s where I have had most success.


To be fair, I think I got lucky in the last 2 years, in spotting that some serious multiple expansions were happening in growth companies. Then I stumbled across the Minervini book, at just the right point in the cycle. So a happy coincidence.

I'm dipping in & out of the Minervini book, thinking about things, then drawing up my own checklist, which heavily relies on his approach, but combines/adapts it with other things that I've learned over the years.


Here's another interesting thing - Minervini suggests that we should be selling things when the bull market leaders begin to collectively roll over. That seemed to be happening lately. Indeed, a lot of PI favourites have dropped c.20% recently. So I think it does feel like we could be pretty close to a market top. But who knows?! Things never seem to pan out how any of us expect them to.

So far so good with Game Digital (LON:GMD) - up 40% from the lows, in less than a fortnight. I think it could go much higher - my target is 50-100p.

I had an interesting chat with a friend the other day, who is a computer gamer (he admitted, in a slightly embarrassed way), in his late 20's I would guesstimate. He said that he actually prefers to buy a physical software cartridge for his gaming machine. He doesn't want downloads - because what happens if, say, the publisher goes bust, or they change their T+Cs? You could lose downloads. Whereas a physical cartridge is yours forever, and can be re-sold.

So maybe the existence of physical shops to buy & sell computer gaming cartridges might last longer than people think? It's a bit like music. I use Spotify, but there's nothing quite like owning a CD. I moved house recently, and boxed up loads of old CDs & DVDs. Couldn't bring myself to throw them out, even though none had been used in years. However, on moving into my new flat, I've started unboxing & playing some of the old CDs, and have re-discovered all sorts of cracking tunes that I'd completely forgotten about, and never would have heard again using a streaming service. And nobody can take those CDs away from me, unless they steal them, or there's a a fire. 

Regards, Paul.

| Link | Share | 1 reply
ricky65 16th Jul 57 of 59
2

In reply to Paul Scott, post #56

Hi Paul

Definitely more skill than luck for me. I think your calls on Boohoo.Com (LON:BOO) and £G4M in particular were strokes of genius. Looking at my notes on Minervini, I get the impression that he doesn’t believe in luck - “Success in the stock market has nothing to do with hope or luck. Winning stock traders have rules and a well-thought-out plan. Conversely, losers lack rules, and if they have rules, they don’t stick to them for very long; they deviate.”

I share your sentiment that we may be close to a market top. I’m not seeing many good long opportunities. Minervini mentions to look for multiple previous market leaders reversing on heavy volume. JD Sports Fashion (LON:JD.) And Domino's Pizza (LON:DOM) are two that appear to fit that criteria. I’ve been having a discussion with someone as to whether the recent 266p high on Boohoo.Com (LON:BOO) was a climax top. Possibly but too soon to tell for me.

Interesting about your friend, reminds me of someone I know. I’m 28 and consider myself a PC and Playstation gamer. There are advantages to owning physical copies of games, as your friend mentioned. The problem is, I’m lazy. It’s too easy to just click a few buttons on Amazon and order a Playstation game. For PC games, I mostly download them from the Steam platform. My friends are the same. I’ll only pop into somewhere like Game If I happen to be out. Perhaps esports tournaments at the stores will bring gamers out?

I definitely think there will be a market for physical games. In recent years there’s been a nostalgia for old games. Later this year Nintendo are going to release the SNES Classic which will have cartridge games. I’m just not sure if it will have mainstream appeal or be a small niche.

Kind regards

Ricky

| Link | Share
TMFMayn 17th Jul 58 of 59
4

In reply to Paul Scott, post #54

Hello Paul

Quick query: have Allenby adjusted for new site openings during the year? Given that FM is opening so many new sites throughout the year, the average turnover of the whole estate would be meaningless - because new site openings part-way through the year would depress the average revenue figure to a considerable extent.

 Here is the pdf again and a screenshot of the relevant section:

http://www.allenbycapital.com/research/research-fulham_16_1316430210.pdf 

596c7e28c6389Screen_Shot_2017-07-17_at_0

Allenby has taken a simple average of sites for each year. 

I did the same for the H1/H2 splits. My figures for Franco Manca are (calculated on an annualised basis):

H2 2016: £9,847k revenue, 17 sites, £1,158k rev per site 
H1 2017: £12,595k revenue, 22.5 sites, £1,120k rev per site
H2 2017: £14,171k revenue, 29 sites, £977k per site 

The average revenue per site would only make sense if calculated on an LFL basis - i.e. sites which have all been open for 2 complete years or more.

Perhaps, but because FUL does not disclose LFLs — and there is not a set standard to calculate LFLs anyway — these numbers are all we have. Indeed, Allenby is basing its forecasts on this particular revenue per site number. 

I only mention all of this because I hold shares in the hapless Tasty, where revenue per site stats were showing a marked deterioration well before this year’s warning.

Calculated on the same basis as FUL, TAST’s revenue per site for 2011, 2012, 2013 and 2014 were £910k, £942k, £909k and £929k — sure, a bit up and down, but reasonably stable.

Then for 2015 the figure was £852k, with H2 at a worrying £833k versus £938k for the prior H2.

Then for 2016 the figure was £841k -- so no major improvement.

Then came the warning in early 2017.

TAST’s drop between for H2 2014 and for H2 2015 was 12% — at a time when it, too, was accelerating its rollout and everything ought to have appeared sound.

For comparison, FUL’s drop for Franco Manca between H2 2016 and H2 2017 was 16%.

| Link | Share
TMFMayn 17th Jul Reported for Spamming
1

In reply to Paul Scott, post #54

Hello Paul

Quick query: have Allenby adjusted for new site openings during the year? Given that FM is opening so many new sites throughout the year, the average turnover of the whole estate would be meaningless - because new site openings part-way through the year would depress the average revenue figure to a considerable extent.

 Here is the pdf again and a screenshot of the relevant section:

http://www.allenbycapital.com/research/research-fulham_16_1316430210.pdf 

596c7e28c6389Screen_Shot_2017-07-17_at_0

Allenby has taken a simple average of sites for each year. 

I did the same for the H1/H2 splits. My figures for Franco Manca are (calculated on an annualised basis):

H2 2016: £9,847k revenue, 17 sites, £1,158k rev per site 
H1 2017: £12,595k revenue, 22.5 sites, £1,120k rev per site
H2 2017: £14,171k revenue, 29 sites, £977k per site 

The average revenue per site would only make sense if calculated on an LFL basis - i.e. sites which have all been open for 2 complete years or more.

Perhaps, but because FUL does not disclose LFLs — and there is not a set standard to calculate LFLs anyway — these numbers are all we have. Indeed, Allenby is basing its forecasts on this particular revenue per site number. 

I only mention all of this because I hold shares in the hapless Tasty, where revenue per site stats were showing a marked deterioration well before this year’s warning.

Calculated on the same basis as FUL, TAST’s revenue per site for 2011, 2012, 2013 and 2014 were £910k, £942k, £909k and £929k — sure, a bit up and down, but reasonably stable.

Then for 2015 the figure was £852k, with H2 at a worrying £833k versus £938k for the prior H2.

Then for 2016 the figure was £841k -- so no major improvement.

Then came the warning in early 2017.

TAST’s drop between for H2 2014 and for H2 2015 was 12% — at a time when it, too, was accelerating its rollout and everything ought to have appeared sound.

For comparison, FUL’s drop for Franco Manca between H2 2016 and H2 2017 was 16%.

| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are Fulham Shore's fundamentals sound as an investment? Find out More »



About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis