I Read The News Today Oh Boy! 19-Apr-2018

Thursday, Apr 19 2018 by

Morning all!

A few PC issues this morning – What’s the issue with the Surface Pro 4 sometimes just refusing to ignore the 2 connected monitors even after many restarts! Anyway…

Debenhams ( Debenhams (LON:DEB) ) – 23.32p – £276.3m – PER 6.07

Interim Results For The 26 Weeks To 3 March 2018 – LFL Revenue down 2.2% (CC) and most other stuff down 50% or so, including the Dividend.

I said this last time and I still have the same feeling – I just have no idea where Debenhams will be in 5 (or even 2) years time – Will it be bust or soaring high once again? Or, still struggling along? I favour the struggling along or bust options – I am Avoiding for now.

Gattaca ( Gattaca (LON:GATC) ) – 193p – £57.7m – PER 5.19

Interim Results For The 6 Months To End January 2018 – Growth but not much of it, Dividend cut 50%. February and March broadly in-line but (Ouch!) expects FY PBT to be about 15% below previous expectations.

I remain Neutral for now.

Idox ( Idox (LON:IDOX) ) – 30.45p – £127.4m – PER 8.33

Trading Update For The 5 Months To End April 2018 – H1 expected to be well below the same period last year but confident of FY in-line with expectations – Yeah right!

I will not be getting involved here at present.

Science ( Science (LON:SAG) ) – 204p – £81.6m – PER 13.6

Business Update – 2018 Q1 Revenue and Profits ahead of the Board’s expectations. Buy Back program, up to £100,000 per calendar month capped at £1m annually.

Quite like this but just not yet tempted enough, will keep an eye out for updates.

Trifast ( Trifast (LON:TRI) ) – 269p – £326.5m – PER 19.6

Trading Update For The 12 Months To End March 2018 – Underlying PBT to be slightly ahead of managements expectations. Order pipeline encouraging, enters the new year in a confident mood.

A great 5 year return here for investors…

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10 Posts on this Thread show/hide all

MrContrarian 19th Apr '18 1 of 10

My morning smallcap tweet:

Gattaca (LON:GATC), Trifast (LON:TRI), Idox (LON:IDOX), Hvivo (LON:HVO), Angle (LON:AGL), Science (LON:SAG), Debenhams (LON:DEB)

Gattaca (GATC) H1. Guides FY U/L pretax 15% below its previous expectations due to "changes being implemented in the Technology division in the coming months, alongside the economic challenges"
Trifast (TRI) guides FY U/L pretax slightly ahead of mgmt expectations.
IDOX (IDOX) AGM stmt H1 will be "well below the same period last year, reflecting the impact of the first quarter disruption, changes in revenue recognition as announced at the final results in March, and a seasonal skew to the second half as in most prior years. The completion of our reorganisation, which is expected to deliver annualised savings of c. £7m, and the benefit of the strong sales performance...Board remains confident that the Group will deliver an improved performance in the current year in line with market expectations."
hVIVO (HVO) FY and CEO resigns ('stepping down') immediate effect. Boilerplate thanks. FY looks OK with a quick skim.
Angle (AGL) US cancer center uses Parsortix system. "Unique capabilities of ANGLE's Parsortix system address a key aim of precision medicine to test drugs outside the patient to determine which drugs will benefit the patient. Work highlights another major opportunity for the use of ANGLE's Parsortix system in breast cancer post FDA clearance."
Science Group (SAG) AGM stmt: guides FY adjusted operating profit ahead of market expectations. Panmure Gordon replaces Numis as nomad.
Debenhams (DEB) H1. Guides FY at lower end of market expectations. CFO moving to Selfriges. I'm short.

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Effortless Cool 19th Apr '18 2 of 10

Morning Matylda,

Thanks as ever for the post. One small correction: it's the chairman, rather than the CEO, that is stepping down at MPAC (LON:MPAC) .

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matylda 19th Apr '18 3 of 10

In reply to post #355023

Thanks and thanks - Now corrected.

Blog: Briefed Up
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andrea34l 19th Apr '18 4 of 10

In my mind there seem to be a lot of announcements out today which are either disappointing or reflect that share prices are well ahead of themselves.

The Debenhams (LON:DEB) interims are horrendous, and although it is hardly surprising that the dividend has been cut I'd say a lot of people hung on for this. I'm also not surprised by the results, the store in my nearest store looks very tired while another one seems cluttered and cramped. They also have tonnes of stuff on the sales racks that aren't shifting, and some of the new ranges are frankly odd.

There was an in-line update from Discoverie (LON:DSCV) too which indicates to me that H2 is rather softer than H1.

I agree that the valuation of Trifast (LON:TRI) looks rather stretched - we don't know what 'management expectations' are, but looking at the last interims and prelims I can't imagine the increases will be more than 12-15%.

I think Science (LON:SAG) looks rather dull, if the currency movements are removed from the last results the figures are pretty flat.

Thanks for the useful heads-up, as ever, Matylda

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Gromley 19th Apr '18 5 of 10
I said this last time and I still have the same feeling – I just have no idea where Debenhams will be in 5 (or even 2) years time – Will it be bust or soaring high once again? Or, still struggling along? I favour the struggling along or bust options – I am Avoiding for now.

Personally I'm of the view that they will be somewhere better than "struggling along", but possibly not soaring high. There certainly remain risks and uncertainties , but I'm slightly reinforced in that view on first reading of today's results, but i think there is absolutely no urgency to act on that yet.

Certainly today's result is materially worse than indicated in the January trading statement (FY profits downgraded by 15-20%). However, arguably that was already priced in - the share price initially fell 15% on the trading statement to 30p, so is now trading a further 20%+ below that level.

We also now learn that the three year transition plan will cost £85m (£50m of which is cash) rather than the previous guidance of £55m (£27.5m cash), they have already incurred about a third of that cost, but only about a quarter of the cash element. They look adequately funded to see this programme through (assuming costs don't further escalate) , but for me I would be looking for more evidence of this actually bearing fruit at the bottom line (as opposed to the warm words so far) before considering investing.

I know that Paul Scott intends to cover Debenhams (LON:DEB) today and I'm always interested in his perspective on these matters.

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daveinthelakes 19th Apr '18 6 of 10

In the past Debenhams (LON:DEB) depended on big bungs from developers to anchor schemes, We are talking £10-20M to fit out, rent frees and lowish rent etc. This is why they had to take long leases. Once the stores start to look tired the big capex required for a major refit does not stack up. The new sites for a bung are long gone in this retail environment.

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sharw 19th Apr '18 7 of 10

In reply to post #355038

Yes - I had to look at the interims of Discoverie (LON:DSCV) to find that H1 revenue was up 21% (+15% CER) and then compare with today's up 15% (+11% CER) to see that H2 wasn't so exciting. I also dislike "..full year earnings anticipated to be in line with management expectations". There are at least 3 brokers producing forecasts on this so that phrase I interpret as "slightly below market expectations".

It is not all disappointing this morning. AVEVA (LON:AVV) produced a good pre-close announcement sending the shares to a new all time high.

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Beginner 19th Apr '18 8 of 10

In reply to post #355038

Sometimes 'rather dull' can be interesting. Science (LON:SAG) has an excellent management team, who have a lot of skin in the game. The company has 25% of its market cap in freehold property, turns a nice profit, has no debt, and gives a yield of c2%. They are overdue a re-rating. It may not make you rich, but owning it will probably make you richer.

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Gromley 19th Apr '18 9 of 10

I see that Paul is much more negative on Debenhams (LON:DEB) than I , I thought that might be the case. In fact I personally disagree with a number of the points Paul makes, but actually that doesn't matter as most of that would be resolved by the extra evidence I'd like to see before considering investing here, so when Paul says that this is uninvestable (in either direction) currently, I wouldn't disagree.

Anyway I just want to go back to a couple of points I noted earlier.

1. The scale of the profits downgrade.

Firstly I would just say that Debenhams (LON:DEB) should be commending for given actual numbers around their expectations range, rather than on the quiet "guiding" analysts to a few that they can include in their research notes which may or may not be available to everyone on in the market.

However, that can also make you a hostage to fortune as is demonstrated here.

In January their guidance was for profits in the range  £55-65m (so say £60m as the mid case) now three months later and with the all important Christmas figures already known at the time of the original forecast they are guiding us in the direction of £50m - thats a £10m (17%) difference, in fact it must be a much bigger percentage difference given that 4 months of the year (including Christmas) were already known.

That is actually an astonishing downgrade imho - although as I suggested earlier, perhaps the market had already worked that out.  It's true that the extreme weather was not know in January, but as that only accounted for 1% of H1 turnover it doesn't make much of a dent in this downgrade.

Accepting that the FD has got a new job to go to, I can't help but wonder whose decision it was that he should leave.

But, there might be an inkling of good news here. One would hope that they have learned a lesson from this and that when they now guide us towards a profit number around £50m, that is because they are absolutely sure that is in the bag; although it is still £7.8m in H2 compared against £7.4m last year.

2. Transformation Costs.

I suggested earlier that they had already incurred a third of the 3 year transformation costs and a quarter of the cash. In fact I think now they have incurred more than a quarter of the cash.

The £28.7m of exceptionals was £15.1m and therefore I presume £13.6m of cash costs (which was where I drew my previous estimate) but also I noted that they did c. £12m of additional capex (above the prior year figure). So I think they have deployed about £25m of the restructuring cash (from a total £50m over three years). This is important, both in terms of considering whether the level of debt is a risk and also on when the restructuring actually become cash generative rather than a cash drain. I suspect that now may be as early as next year, but again that's something for which I want to see a more tangible view before considering investing.

Curiously at the time of writing the price is up c. 15% compared against it's recent low of a few days ago.

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Gromley 19th Apr '18 10 of 10

I might be talking to myself now re Debs but on my comment on the weather impact, I note that Matt Smith (CFO) said in the results presentation that it was responsible for a £12m reduction in revenue (about the 1% noted) and a £5m reduction in profit. I still cannot get my head around why the profit impact would be that big, but being the case their forecast miss is not quite so bad or embarassing.

The 'adjusted' January forecast was therefore £50-60m and they are now guiding towards the £50m end.

I would have thought though that some of the sales lost in the cold snap would simply be defered rather than not made at all, so fall into H2.

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