SCS Group price fall

23rd Jun '16 by Whitbyview

41 comments 15802 reads

Hi there. So SCS (LON:SCS) has the top Stockopedia stock rank on the UK market but fell 7% today. Some web searching only finds glowing recommendations. I accept it is very vulnerable to a BREXIT vote but other such shares haven't been similarly treated today from what I can see. Any ideas why the fall from favour on today of all days? Thanks :)

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Whitbyview

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41 comments

Whitbyview

23rd Jul '16

Yes, interesting times. I'm not convinced sales are going to be as badly affected as the market thinks because: (a) reports in the press seem to suggest that people are just getting on with it and spending anyway; (b) if I was going to buy a relatively big ticket item (be it a sofa or a car frankly) I would be buying it now before the fall in the pound puts up prices potentially; and (c) as previously discussed [and contrary to the premise behind (b)] we know SCS (LON:SCS) actually buy in pounds. In truth I don't know but holding this share doesn't keep me awake at night like some others :)

Paul Scott

29th Jul '16

Low net margin retailers are a disaster waiting to happen in a slowing economy - they rapidly turn from profits into losses, due to operational gearing.

So I would deploy my bargepole with this one. I also remember it looking great value in 2008, and it went bust shortly afterwards.

The main costs are fixed, so this type of stock is smashed in a downturn.

Ignore broker forecasts - they're often disastrously optimistic in a downturn.

Regards, Paul.

rhomboid1

29th Jul '16

Hi Paul
I've bought a tiny position here as part of my income portfolio, mgt here are the same guys as went bust last time and then were bailed out by a Private Equity fund iirc. and my guess is that they've learnt the lessons.. The balance sheet even shorn of prepayments still leaves a healthy cash surplus, last time they were far more stretched. Their customers are driven by finance offers and most are not housing market transaction led purchases so I can see this being a great long term hold from these levels.
Cheers

alan000@yahoo.com

29th Jul '16

Paul makes a pertinent point about operational gearing and low margins. However, in a retail industry where an "average" EBITDA to Enterprise value is 6-8 times, this is valued at 2 times. Arguably, the share price is already factoring in a very disappointing path from here. The fact it went bust in 2008, and quickly issued a profit warning on re-admittance last year, are two factors which weigh heavily on the price. I hope and believe they are much better placed than 2008, without the exposure to supplier credit insurance that sunk them then, and also we have to hope that the severity of the 2008/9 downturn was a once in a lifetime event, and what we face now is not on that scale...but who knows!

Whitbyview

1st Aug '16

Hi Paul, Thanks for your thoughts. I'm sure you may well be right but I wonder how that knowledge might be built into the stock ranks, as based on many Stockopedia metrics this one looks a sure winner. There seem to be two camps on this site as I can see it: those that say the ranks are a starting point but research is essential; and those that say the ranks are key and we need to remove emotion from our choices. OK, that might be a bit of a generalization but I hope you recognise both types here. Just interested to hear if you can think of how the team could build in the added insights of an experienced investor like yourself. Thanks again anyway.

Whitbyview

9th Aug '16

Glad to see that Paul is warming to this one a bit more based on today's comments on his daily update. As I suspected in my previous post, it seems SCS (LON:SCS) are doing OK despite BREXIT. I think it probably is still too early to tell for the long term but I am definitely holding, if only for the 10% divi!

PJ0077

10th Aug '16

I'm curious as to why investors hold shares for dividend income.

Surely on xd-day the dividend amount is fully offset matched by an corresponding fall in the share price?

Where is the net gain?!

Whitbyview

10th Aug '16

It is often said that shares fall by the amount of the dividend when they go XD. For a few short minutes at 8am the next day they might but in my experience, this is not true over a longer timescale ... The memory is apparently quickly lost. If you look at the share price a week before and after they go XD, they are often the same. If that is the case, with a share like this, you make a 10% bonus by buying before they go XD. Maybe people don't agree with my anecdotal evidence but the bottom line is that reinvesting dividends makes a massive difference to your long term return.

hayashi22

11th Aug '16

Some great posts. I was wondering whether to buy some of these. The views seemed 50/50 with excellent pros and cons. Anyway I did which was the right move. I think the DFS RNS today rather confirms that. You have to think that the ceo would not want to preside over a similar debacle to 2008 when a veritable storm of adverse factors impacted on the company.

Whitbyview

11th Aug '16

Thanks for pointing out the DFS Furniture (LON:DFS) news, which is indeed interesting. However, did you see the SCS (LON:SCS) release today? Maybe I have read it wrong but it implies to me that the named organization has bought 5% of the shares from a position of previously owning no shares? Is that other people's reading? That's no mean feat if they have, given the illiquid nature of these shares. No wonder the price is going up so quickly.

dfs12

12th Aug '16

Looks like 5% position following purchases to me but then if you look back in November they disclosed 6% holding. So either they are dipping in and out, forgot a form in the intervening period or filled the form in wrong. Both SCS (LON:SCS) AND DFS Furniture (LON:DFS) look pretty good to me. Looking further afield United Carpets (LON:UCG) should be doing better than people expect too as their market must be pretty similar to the furniture retailers.

hayashi22

12th Aug '16

Think its Threadneedle above 5%. The general rule is no disclosure necessary below 3% and then disclosure when the holding goes through a percentage point -either up or down. I will have a look at United Carpets. I'm getting to like the retail space. I'm yet another who has to thank PP for the BOO tip though I did have a couple of secondary sources to confirm buying was the right thing. Have been tempted to take a bit off the table but on second thoughts have decided to let the position run and let the company grow into the punchy valuation. Besides the PLT situation should, if resolved properly, be a catalyst for further share price appreciation.

Whitbyview

12th Aug '16

Thanks for the insight. There is talk of United Carpets (LON:UCG) here so I should probably just say that I sold them to move into SCS (LON:SCS). As has been said, it is a similar market and there are probably other similarities too but I got a bit too nervous about the size of the company and the lack of publically traded shares. Probably me just being over cautious - DYOR as always.

dfs12

4th Oct '16

Great results from SCS (LON:SCS) this morning. Worries about brexit impact seem unfounded so far. No debt, growing lfl at a steady pace and confident enough not to go for a massive dividend hike even though they could afford it. Having said that at the current share price the yield is over 7% so not too shabby! A boring share perhaps and one tainted with past scars, but looks promising. Sector looks interesting as others have provided good results too. Along with SCS (LON:SCS) I hold United Carpets (LON:UCG) and I'm hopeful that they are enjoying a similar upturn in fortune.

rhomboid1

4th Oct '16

I hold SCS (LON:SCS) in reasonable size , I bought from around the 1.50 level as it seemed standout value, I like the yield and the mgt have been through good and bad times so should have learnt lessons along the way, the HoF concessions could become a major contributor in the future as they're now ebitda positive. United Carpets (LON:UCG) I can't bring myself to buy as the stores I've seen are very secondary locations and the divi seems to play second fiddle to freehold acquisition

dfs12

4th Oct '16

Hi,
Thanks for the post. I'm interested in your comment on United Carpets (LON:UCG) as I think I might have missed something. Recent dividends... a special dividend of 1p was paid in Jun 2015, then 0.75p paid in Oct 2015, and another 0.125p in Jan 2016. So shareholders have received 1.875p in divis for a year - that's a yield of 16% on the current price. Clearly you can't rely on the special dividend being repeated but even dropping that out of the equation you're looking at a dividend of nearly 8%. I'm really not trying to win you over... I'd just be interested to know if there is something I don't know about. Many thanks.

rhomboid1

4th Oct '16

Hi dfs12

I might have missed something as well!, Stockopedia has United Carpets (LON:UCG) at 3.47% yield , it records an interim and a final totalling 0.39 p so nowhere near 8%?

re property the 2016 accounts say "A unique opportunity arose during the period to acquire the freehold of 2 of the Group’s long established stores. Rather than allow ownership to pass to a competitor, the Company acquired the 2 sites plus a further non-core site for £1.0m in February 2016. It is the Group’s intention to sell the non-core site in due course." £1m in the context of a £9m market cap is huge and probably explains why the 1p special divi hasn't recurred this year

So your 2016 special divi turned into bricks and mortar from where I'm sitting? Finally Mr Cowgill was involved in MBL many years ago which was a tale and a half...

dfs12

4th Oct '16

Hi Rhomboid
Thanks for the note. Yup see exactly where you're coming from - looks like they dropped the div by a good margin (and I didn't notice - whoops). Still I suppose that 4% isn't bad in terms of yield and if everything holds up in the business they shouldn't be buying more props next year so that might mean bigger divis again? I took a very quick look at Mr Cowgill (Non Exec Chairman) - he's also current Chairman of JD Sports Fashion (LON:JD.) which has had an absolutely fantastic run share price wise. I don't know anything about "the MBL tale" - it looks like he had a bust up with the board of MBL... but I don't know any of the history or what happened subsequently. Is it possible it was a mistake he learned from or whether he's just got a bit lucky more recently?! Thanks again and any extra info would be very welcome.

rhomboid1

4th Oct '16

http://boards.fool.co.uk/this-is-a-shocking-story-for-investors-and-the-12348062.aspx

dfs12

4th Oct '16

Thanks - not pleasant reading. Crazy world we live in. Sadly it's beginning to sound all too common.

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SCS Group price fall

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Whitbyview

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