Crawshaw Group; Placing to fund expansion;good. Small shareholders being ignored;bad!
Crawshaw Group (13p and 1.0% of JIC) I attended a presentation on Monday night by Richard Rose the Non-Executive Chairman of an interesting small company called Crawshaws.
First a bit about Rose. He has had a very successful corporate career and has a tremendous record of creating shareholder value. You only have to look at the two other quoted companies where he is chairman; Booker and Anpario. He also joined Whittards when it was flat on its back and saw the share price go from 20p to the 200p when it was acquired by private equity. He bought a 15% stake in Crawshaws and so has an active interest in seeing it succeed. He may be non-exec but I got the impression that he is pretty hands-on.
So what does Crawshaws do? It owns 20 butchers shops in Yorkshire, Lincolnshire, Nottinghamshire and Derby and in the last year ending January 2013 it had a turnover of £18.8m. Supermarkets have long term contracts with their suppliers. When they do not call off all the meat they need this is where Crawshaws steps in; through an arrangement with these suppliers it will take the meat at a discounted price, (it may only have a few days shelf life), and sells it around 40% cheaper than in the supermarket! So, you are buying supermarket quality meat at a discount. The meat is cut in store and rather than being packed with an inert gas (CAP) it is sold in a cling film wrapped container with a little bit of red blood showing; it looks more attractive and fresher. Rose said supply of meat was not an issue with enormous head room in supply. It makes around 43% gross margins but at the net level he sees scope to increase from last year’s c.2.5% and has a target of achieving 10%; helped by higher margin sales of hot food.
Fresh meat accounts for around half a stores turnover with the other half coming from hot prepared foods. Rose mentioned that in the middle of next year they are going to trial a concept store that would sell just prepared foods. Higher margins and much higher return on capital. The cost of fitting out a store would be somewhat less than its traditional butcher shops, (£30-50k v £0.5m) and if successful could be rolled out on a franchise basis. If it succeeds than it would provide a significant boost to profits but the buy case does not depend on it.
Back to the traditional butchers shops. It plans to open around two new shops a year, adding over 10% to floor space. These stores cost around £0.5m to kit out hence the softly-softly approach to new openings; having learnt from experience, Rose prefers to let each opening bed down before moving on to the next. A new shop should achieve sales of around £24,000 per week, so in a full year trading two stores should add around £2.5m turnover to the current forecasts of £19.5m for the current year.
It was interesting listening to him talk about the ethos of the business. In answer to questions about pricing such as “surely you could get away with putting up prices a little with the commensurate uplift in margin” he was robust in his answer. They are growing a long term business and building customer loyalty was paramount; customers must say “look what I have bought and wow, all for £20”! Word-of-mouth was important.
When asked about an exit for the business he said that he wasn’t looking for an exit. He was motivated by creating a successful business and having happy shareholders who want to invest in his next venture. He mentioned that he wanted to build Crawshaws into a £100m turnover business.
Valuation: At the current share price it has an enterprise value (market capitalisation of £7.37m and net cash of £340,000 at the half year stage) of £7.03m compared to £19.5m forecast turnover. Earnings per share are currently forecast at 0.6p for the year ending January 2014 putting the shares on 21.6x falling to 18.5x January 2015. It is valued at 11.6x free cash flow which is attractive relative to the market. It paid a 0.09p interim dividend and is forecast to pay a 0.3p total dividend in the current year, giving it a prospective yield of 2.3%.
Current trading has been good. In the first half like for like sales were up 5%, in the first 8 weeks of the second half (to 26th September) l-f-l’s had accelerated to 10% and rather annoyingly, a trading statement put out first thing on Tuesday morning showed that in the seven weeks since 26th September sales had accelerated again to 18% l-f-l’s and most importantly at a higher gross margin! The improvement was put down to “management actions to grow sales and margins, continuing to work”!
The shares bounced 20 % almost immediately on Tuesday after that announcement. I have watched and thought about this one over the last few days and have decided to take the plunge. Earnings estimates have been upgraded this year but the estimates I quoted above do not seem to take into account Tuesday’s statement.
This is a much smaller market capitalisation, only £7m, than I would normally get involved in but I think it may just be a great investment and the risks are mitigated to some extent by a strong balance sheet, good cash flow and excellent management under the guidance of the impressive Richard Rose.
I have only bought 1% to start with, partly because that is all the cash I have but also because I think a “suck it and see” approach might be sensible! (See transactions)
There is an up to date presentation at www.crawshawgroupplc.com
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11 comments
I'm happy with the company raising funds - but furious that as an existing shareholder I'm being left out.
Are there enough of us to block the resolution?
Chap on the discussion thread on Paul Scott's report today posted this;
"In my days as an institutional investor in the City I seem to remember there were placings that involved a firm element and an element which was subject to claw back depending on the take up by existing shareholders. This seemed like a good compromise to address the issues you discussed. Guess it would be a bit more complicated and expensive to administer though but would at least recognise some of the existing shareholders pre-emption rights"
I'd be more than happy with this but like you say, are there enough of us to propose this?
It was common practice and made sense as the Company was sure of receiving the cash it needed and yet small shareholders could participate. Cannot believe it would be that expensive and if it is they could have narrowed the discount a bit to make up for it!
I'm afraid I think the company has accepted poor advice. I would love to know how much the advisers are being paid. The announcement tells us they are raising £8,820,000 gross but not the net amount!
Its not so much the discount that should annoy it is that existing shareholders, especially smaller PI's are being ignored. Presuming you are an existing shareholder I bet you would like stock at 42p!
Hi John
Yes I am angry about the scale of the discount but was buying back previously sold shares first thing this morning.
Crawshaw Group (Market capitalisation: £34.0m, 59p and 3.5% of JIC Portfolio); The Company has announced this morning that it is aiming to raise gross proceeds of £8.8mthrough the issue of 20.999m new shares at 42p. The first 6.547m shares have already effectively been placed with VCT investors whilst the remainder will be placed with institutional investors, presumably, once approval has been given by shareholders at the AGM on 22nd July. Approval is needed for the Company not to be bound by pre-emption rights which require a company to offer new shares for cash first to existing shareholders in proportion to their holdings.
Last week in its trading statement it mentioned that it was looking to accelerate the opening of stores in order to build up a nationwide presence. The money being raised will be spent on achieving this aim.
Conclusion; mixed emotions! I am very excited about the prospects for Crawshaw as it builds the business under the guidance of major shareholder, Chairman and excellent business man Richard Rose. However, I am not happy, actually very angry, that existing small/private shareholders, who by definition have supported the Company thus far are being completely ignored in this placing. I also do not understand why the placing has to be at such a massive discount; a 29% discount to last night’s close and a 38% discount to Monday’s close. Fortuitously I reduced the holding slightly, earlier in the week. I intended to buy back at around the 51/52p level. It looks like I will now have that opportunity but will probably hold out for a lower price. This will provide an opportunity to re-build my holding, albeit it not at the attractive terms of the big institutions. Shame on the Company for not looking after small shareholders! Perversely, Happy Holder!
Excellent video on Crawshaw website which succinctly explains what they do.
I understand they put it there following a request by David Stredder.
Other companies, small and large would be wise to take note and provide a similar type of video.
Well worth watching!
http://www.crawshawbutchers.com/crawshaw-group/about-us
I still hold in the JIC Portfolio
Crawshaw Group (17p and 2.1% of JIC Portfolio) has issued a trading statement this morning covering the period from 18th November. It has shown an acceleration in sales growth with like-for-like growth of 21% and it says, at a higher gross margin. It says that it expects the out turn for the full year ending January 2014 to be materially ahead of the current market forecast.
Richard Rose, Chairman of Crawshaw, commented: "Our customers are spending more with us, and we have attracted a lot more customers. This reflects the excellent quality and value we offer. The improvements in trading performance are spread across most of our stores, and this gives me much confidence for the future. We are excited to have been able to restore our store expansion program, albeit in a very controlled manner."
Conclusion: Wow! It is difficult to imagine a better trading statement! The previous 7 weeks ending 18th November had seen an acceleration in like-for-like sales growth to 18%, so to get further growth on top of that suggests Crawshaw must have an offering that is gaining traction with its customers. In addition, it reminds us that it opened a new store in Sheffield at the end of November and that further openings are on the way. I last posted on this stock on 17th December when I increased my holding to 2.0%. I said that I thought that the market forecast was too low and that having done some simple maths I could not see how it would not achieve at least 1p of earnings in the year ending 31st January 2014. Given today’s announcement I feel more confident with that analysis and am glad that I increased my holding. This feels like a stock which has a lot more growth in it over the coming years. Very Happy Holder!
john, i seen the 10p spike up in fccn, and couldnt figure out why it did this well before the interims in october. Since then its back to only +5p of that. Pauls own musings over fccn have always been that it would take time EG at least a year, probably two as the trading was ok with just a few tweaks but it was those leases that was sapping all the profit, hence the time frame. I did hold fccn but sold them for breakeven as couldnt see traction I may buy in again though.
Crawshaw Group (16p and 2.0% of JIC) I have been doing a little more work on Crawshaw. In the year ending 31st January 2013 it made earnings per share of 0.309p split equally between the two halves. In the first half of the current year ending 31st July 2013 it achieved like-for-like sales growth of 5% and helped by a slight increase in gross margins from 43.6% to 43.9%, it declared earnings per share of 0.473p. When it issued the results in September it said that for the first 8 weeks of the second half like-for-like sales growth had accelerated to 10% on similar margins to the first half. This was followed by a trading statement on November 19th which stated that like-for-likes had accelerated to 18% and on a higher gross margin! Given these figures I find it difficult to see how it can make anything less than 1p of earnings for the current year ending 31st January 2014. Given that growth, the good cash generation of the business and the opportunity for future growth I have decided to increase the holding to 2.0% of the portfolio, having bought an initial 1% on November 22nd. (See transactions)
Ps I was pleased to hear from my son who has just completed his first term at Leeds Uni, that he was a regular at Crawshaws, where for £10 he walked away with enough meat to keep a hungry lad going for days.
I have funded the purchase by reducing French Connection to 2.0%. I’m slightly concerned by the share price movement in the last few days and do not want to have too big a position should Xmas trading disappoint. In short, I am feeling a little more optimistic about the prospects for Crawshaw. I booked a profit of £275 on the sale. (See transactions)
Looks good to me. This is on my hit list and is about the 3rd time I have seen it. A change for the good it seems as though they have a man of experience to sort the company out. Could be another winner.
Cheers from Lightningtiger