Small Cap Value Report (Wed 21 Jun 2017) - WGB, WYN

21st Jun '17 by Paul Scott

19 comments 12523 reads

Good afternoon, it's Paul here.

It's quiet for news today - good thing too, as it's far too hot to be working! We've got the plumber in, so there's no water - so I can't even make a cup of coffee. Hopefully the lack of caffeine won't affect my writing too much, although I do feel duty bound to flag up the risk of impairment.

(sometime later) There's been a further delay because the plumber turned off our electricity without warning me, so I lost all my work. Thankfully Google Chrome has come to the rescue - it's managed to retrieve my lost work. I didn't have the heart to chastise the plumber, because a brief loss of electricity is nothing compared with his usual handiwork - last time he flooded our ground floor by cutting the wrong pipe, thus causing the hot water tank to empty its entire contents in our kitchen-diner. Still, he's a nice chap, just not a very good plumber.

Incidentally, I did some reading up on N Brown (LON:BWNG) on the train to London last night, and it looks potentially interesting. I've picked up an initial opening sized position in it myself, and want to flag the idea to readers too. It's a mid cap, so outside my area really. The company issued a strong trading update yesterday, and it seems to me that the stock looks very cheap compared with other internet retailers (most of its sales are conducted online). Anyway, have a look, and let me know what you think. I've only done superficial research on it so far, so would be interested in reader views, who may know the company better than me. The company seems to have had problems in recent years, but could now be back on track? I think there might be a possibility that the share gets re-rated to being a growth company, perhaps?

All this business going to online retailers must be coming from somewhere - so I remain bearish on more traditional, mid-market retailers in particular.

Walker Greenbank (LON:WGB)

Share price: 197p (down 1.7% today)
No. shares: 70.4m
Market cap: £138.7m

AGM Statement (trading update) - this is a luxury interior furnishings company. It today reports on trading for the year to date…

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dgold

21st Jun '17

Paul. It's the lack of coffee. You've quoted he outlook comments about "step change" twice.

JohnEustace

Re N Brown (LON:BWNG), Ive been watching them off and on for a while thinking they could pick up - maybe their time is coming.
As I'm of an age where the very polite young assistant in Next recently felt the need to explain to me very slowly that I might be able to find the item I was looking for by using this new thing called the internet to look on their online shop on their "website" I mean no offence in suggesting that the typical N Brown customer might be a bit more mature than the pretty young things buying from Boohoo and this might have meant they were a bit slower to transition to online shopping?

Richard Cockbain

Paul, your comment "he's a nice chap, just not a very good plumber" made me chuckle. There are a few CEOs and FDs who we can think of that are very nice people but hopeless at running a business :)

daveinthelakes

Paul,

"I didn't have the heart to chastise the plumber, because a brief loss of electricity is nothing compared with his usual handiwork - last time he flooded our ground floor by cutting the wrong pipe, thus causing the hot water tank to empty its entire contents in our kitchen-diner. Still, he's a nice chap, just not a very good plumber."

After all that Stocko has done to warn us that following one profit warning another usually follows!

Dave

les toro

Paul,hope you don't mind me posting an external article but found an interesting N Brown (LON:BWNG) article by Phil Oakley https://www.sharescope.co.uk/philoakley_article118.jsp

aflash

What is the Plumber's nationality and what does he say about the Poles in the plumbing business?
Ask him about immigrant competition, it has serious Macro implications: Exchange rate, Brexit immigration policy etc

johnmayer

Hi Paul , Walker Greenbank (LON:WGB) commented in their Full Year Results on 26th April that they had completed flood defences...

"The factory has recovered from the flood and is back in full production and the Company's Milton Keynes warehouse was fully stocked with the Company's printed textiles by the financial year end. The construction of flood defences to protect the Standfast & Barracks factory has also been completed."

Paul Scott

Thanks john! Very helpful :-)

P.

steviej

Excellent Analysi

Hi les toro,

Intereting article from Phil Oakley. It's his usual style - poring over lots of historical data, and explaining why the stock is cheap (it was 204p when the article was written a few months ago).

The trouble is, he didn't spot the upside potential. So the share is now 50% higher, on the back of positive more recent trading trends.

Also, he didn't spot the overall balance sheet strength, which is excellent - therefore divis look safe.

The big upside here could be when investors realise that this is not a stale old business, but actually an internet growth stock. That's why I'm interested in it. There is scope for a big re-rating if their internet brands show a more positive growth trend (which seems to be starting now), and maybe get valued on a sum-of-the parts basis.

There could be decent upside from the current PSR of just under 1. Once people latch onto the internet growth prospects, then valuations can get much more racy - as happened with G4M and BOTB for example.

At some point I think NXT could move towards an internet rating, but my gut feel tells me that it might have one more profit warning in it yet, hence why I'm currently sitting on the sidelines.

I like Phil's thoughts on the quality of the customer credit. N Brown is basically an online retailer, combined with a high-cost credit finance business. So the risk is that a ton of bad debts (more than budgeted for) could appear at some point. So some useful warnings from him, and a few things to look into in more detail.

Cheers, Paul.

sevenccc

SCSW ran a very positive article on N Brown (LON:BWNG) last year (can't remember which issue). Key point was turnaround in progress and experience of CEO in other significant fashion/retail businesses.

Focus is clearly online, and yes the silver surfers are equally capable of ordering online - and saving themselves trips to the shops! Range, convenience, avoiding stairs/hassle I'm sure play a big part for this demographic too. And the rate of returns are likely to be lower too as they are (maybe) more socially responsible shoppers.

International business starting to grow too. Though US looks like it needs a bit of TLC. The future's bright, the future's sliver...

Samsgrandad

Hi Paul, sounds like your luck with plumbing has been as good as mine. Flushed the loo day before yesterday, the flush mechanism fell apart and water just ran straight down the loo continuously without filling the cistern. This was days before a family party with a houseful of visitors. A kit from B&Q replaced all the valves and buttons and it's better than new in less time than it would have taken phoning around all the plumbers finding a decent one who was available. I've always found that the tradesmen who are available are available because they aren't any good, the good guys are always booked up for days ahead.

Zipmanpeter

Paul,

Further to N Brown (LON:BWNG), Absolutely agree on it being a hidden internet gem. Execution risk is decreasing as "Fit for the Future" nears end and brand consolidation is nearly complete with Power brands operating at good scale (JD Williams 158Mn, Simply Be 114Mn, Jacomo 65Mn). Online sales in total greater than BooHoo (239Mn) !! Provisions rate significantly improved and reported as 2nd best company in UK INstiture of Curstome Service survey.

Greatly relieved you see Balance sheet as strong as high and rising net debt blocking divis was one of my key concerns (along with ongoing astonishment people will sign up for 58% APR credit debt to buy clothes). Margin compression is going to be life for both online and offline brands for some time, driven by the internet. Growth should outweigh margin effects if they execute well.

However, nNeeds another 2 years of progress to burn off remaining transformation costs (new IT systems, brand consolidation always costs before it pays out and legacy issues). Bit annoyed by stores write off as this was counter strategy even 2-3 years ago and now 10 stores left making no money - will there be a further write in the future on these? One to put away and re-vist in 5 years, enjoying divis along the way.

Long term, strategically fishing in very fertile waters (population getting older and fatter in non-PC terms) that will be tough for new (youth focused) fashion players to enter eg BOO setting up a 'target grannies' unit. WIll pick up from retail stores fall out - I think BonMarche is doomed, Debenhams and M&S vulnerable, all with older demogaphics.

However, in a couple years the whole internet shopping thing will seem obvious and so will not command stellar ratings like BOO and ASOS have achieved.

Net, a happy holder but expecting good not stellar results.

You've got to remember that internet is just mail order, by a new name.

So businesses that were good at mail order, are actually quite good at internet.

So at some point, I reckon Next could be a really good investment. But they seem all at sea at the moment???

Cheese, Paul.

gus 1065

22nd Jun '17

I agree that Next (LON:NXT) have a legacy of being good at what they do. I wonder if the share price has been taken down by their foresight in calling out the problems about to be faced by UK high street retail ahead of time. The somewhat downbeat tone in the commentary of their recent trading statements despite generally pretty good underlying performance has been interpreted as them (as opposed to everyone in the high street retail space) being the only ones having problems where perhaps their realism has allowed them to get ahead of the game in dealing with them. Sometimes markets shoot the messenger ....

Gus.

Camtab

Paul
I know you don't normally look at financial businesses however I have a holding in Record who have recently anounced good client growth, a special div and a tender offer which the non exec chair is taking up. I wondered if you have any thoughts at all on it?
best wishes

haroldthegreat

on line buying is mail order without a catalogue.

barnetpeter

One to watch for....currently suspended...Oregon Gold. ORE. Was a (hopeless) micro gold stock, now doing a reverse of Sosandar Aimed at stylish fashion.

Reminds me of Asos which I bought in the early days when I heard they were selling piles of pearl jeans copies worn by a certain Mrs Beckham. One item ( pairs of a women's boot) sold out in 90 seconds last week; when Sosandar had just 200 pairs in stock. https://www.sosandar.com/stylenews/sosandar-dress-celebs-love/ is selling big time.

Just an idea!

bobo

Wynnstay, I know them pretty well, used to compete. Shouldn't be in the market. Avoid, it isn't going anywhere.

Small Cap Value Report (Wed 21 Jun 2017) - WGB, WYN

Walker Greenbank (LON:WGB)

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Paul Scott

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