Small Cap Report (5 Mar) - CUP, FOUR, BREE, MACF, JSG, ISG, ZTF

Tuesday, Mar 05 2013 by

Pre 8 a.m. comments

Regular readers will know that I don't like Cupid (LON:CUP) at all, based on evidence online (try Googling for customer reviews of some of their biggest brand names) of their operations apparently being less than ethical. This was reinforced by a recent BBC Radio Five Live expose of Cupid's modus operandi, which can be listened to here, and specifically names Cupid plc.

I cannot see anything in their results narrative which addresses these concerns, other than rather vague statements that, " is important for the Company to have a medium term goal of improved quality in the eyes of the consumer ... we believe this will cost an additional £2m in brand building marketing across several of our key profit generating markets ...". Hmmmm.

The figures themselves (for the year ended 31 Dec 2012) look very good, with revenues up 51%, adjusted EBITDA up 45%, cash having almost doubled to £14.1m, and the final dividend raised to 3p. All good stuff, but if this is being achieved by misleading customers, as the BBC allege, then it cannot have a very long shelf life. Therefore a very low PER is fully justified.


I believe that Director share transactions often give you the best indication of what management really think about a business, and the Director share sales at Cupid from the Stockopedia table (last item on the menu under "Accounts" on the StockReport) says it all - over £30m banked in Director sales in the last two years!

Follow the money is my view, and the most knowledgeable money has been getting out.



Post 8 a.m. comments

Impressive results have been issued today by 4imprint (LON:FOUR), with underlying EPS up 29% to 28.3p, which seems way ahead of broker consensus of the 22.4p and 22.9p that are shown on Stockopedia and a competitor website for year ended 31 Dec 2012. The difficulty is knowing whether the EPS forecasts have been calculated on the same basis as the adjusted reported EPS figure, which I simply don't know.

Another way of checking whether actual is better than forecast, is to look at the actual EPS growth, which in this case is +29% against +21% shown on Stockopedia forecasts, so it…

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IDE Group Holdings PLC, formerly Coretx Holdings PLC, is a United Kingdom-based specialist managed service provider. The Company provides a broad portfolio of information technology (IT) services and technology solutions. Its services include cloud and hosting, network and connectivity, collaboration, cyber-security, managed services and device management. Its cloud and hosting services include co-location, private cloud, public cloud, hybrid cloud and cloud migration. Network and connectivity services include multiprotocol label switching (MPLS) network, cloud connectivity and wireless. Collaboration services include hosted telephony and unified communications. Cyber security services include security operations center, endpoint and threat protection. Managed services include remote monitoring, systems management and engineer field services. Device management services include procurement, build, deploy, manage, refresh, redeploy and retire. more »

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4imprint Group plc is a direct marketer of products in the United States, Canada, the United Kingdom and Ireland. The Company supplies products under the brand name 4imprint. The Company sells a range of promotional products, which are purchased by a range of individuals within various types and sizes of businesses and organizations. These products have a range of uses as an integral part of sales and marketing activities; recruitment and recognition schemes; health and safety programs; and other initiatives to make a connection between the customer's organization and the recipient. Its promotional products consist of basic giveaways, such as pens, bags and drinkware to more exclusive products, such as embroidered clothing, business gifts and full color trade show displays. The Company's subsidiaries, 4imprint Inc. and 4imprint Direct Marketing Limited, are engaged in direct marketing activities. more »

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Breedon Group plc, formerly Breedon Aggregates Limited, is an independent construction materials company. The Company's operations include a cement plant, two cementitious import terminals, approximately 60 quarries, over 30 asphalt plants, over 200 ready-mixed concrete plants and three concrete products plants. Its segments include Breedon Northern, Breedon Southern and Hope Cement. It supplies a range of cementitious products, crushed rock, sand and gravel, asphalt, ready-mixed concrete and mortar, as well as concrete products and contract surfacing services. Its contract surfacing business comprises road surfacing and maintenance projects, from road networks to car parks, domestic driveways and farm access roads. It produce a range of concrete walling and paving products, blocks and pre-stressed T-beams from its factories in England and Scotland. Its asphalt products are used in various applications, from roads to airport runways, car parks, sport surfaces and domestic driveways. more »

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9 Comments on this Article show/hide all

jamiex 5th Mar '13 1 of 9

Hi Paul,

Would you be able to continue to post links to your blogspot blog - as Stockopedia doesn't have an RSS feed for your updates so I keep forgetting to check!

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marben100 5th Mar '13 2 of 9

Hi Paul,

So maybe I need to recalibrate my idea of what fair value is?

That way lies the poorhouse!

As you say, some fund managers and many retail investors are currently prepared to pay big premiums for go-go growth stories. Whilst some of those may pay off big time, as we know, the majority will disappoint - and then investors face the double whammy of lower earnings and a lower rating. Moreover, should the current bullishness evaporate, then so could buyers and these elevated ratings could tumble.

OTOH IMO valuations for many slightly more pedestrian companies remain at historically low levels. Take Braemar Shipping Services (LON:BMS) and ICAP (LON:IAP) , for example - both sound, cash generative, businesses with good track records (though suffering a bit from recessionary factors) offering yields above 6% - and both likely to benefit from any economic recovery. Is it really right for such businesses to trade on P/Es below 10?

There has definitely been a derating of such businesses since 2008 and their ratings have a long way to go to recover to pre-recession levels. I'd rather have that "double whammy" working in my favour - rising earnings and a higher rating, than the reverse.


Don't get swept along by fashion and follow the herd!



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Paul Scott 5th Mar '13 3 of 9

In reply to post #71364

Wise words Mark, I agree.

Following fashionable shares to toppy valuations nearly always ends in tears, unless you play the game for what it is, and manage to time your exit well. All too often though, I think people fall in love with the share, convince themselves that a toppy rating is justified, and hold all the way down, in denial. I know because I've done it myself!!!

Cheers, Paul.

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Paul Scott 5th Mar '13 4 of 9

In reply to post #71361

Good idea Jamie, I forgot to update my Blog for the last couple of days, will do it now.
I think that Stocko were looking into an RSS feed for my posts here, which would be ideal.

Cheers, Paul.

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loglorry 5th Mar '13 5 of 9

One thing I think is best kept in mind regarding p/e ratios and GARP is that sometimes a p/e can look very high e.g. 100x but in absolute terms the profit can be quite small because the business is just turning into profit. This is best explained by an example.

Suppose company A has a p/e of 100 and is earning £1m with a market cap of £100m and company B has earnings of £50K and a market cap £5m also with a p/e of 100. Both operate in high growth new areas of the economy but the latter is obviously much more early stage.

It's pretty obvious to see that company B could grow earnings to £500K without much trouble reducing p/e to 10 by squeezing another £450K of profits whereas A has to grow by £9m.

This is all very obvious stuff but one needs to bare in mind what the eventual size of the market might be the company operates in and how far along the growth curve they are what sort of competition there is etc. when deciding how "expensive" a p/e rates a stock,.


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SevenPillars 5th Mar '13 6 of 9


Does the market and individual shares ever truly reflect what may be seen as "fair" value? That's surely why you have value investing, growth investing, momentum investing or trading, etc. You are always likely to have to pay more for companies that are perceived by the market to be growth prospects or have strong momentum and their valuations are likely to remain stretched until market sentiment towards them changes. This might be because sentiment has shifted about the company itself from one of being a growth prospect to one that should actually be producing growth and is now seen as more mature. Alternatively, in a bear market or the various cycles that some sectors go through we will often see under valuation of what may be good companies because of sentiment changes.

If it is a bull market then I would have thought that it will be increasingly difficult to find "value", if by value you really want things to be cheaper, but often things get cheap for a reason. This may be due to a market sentiment that you see as wrong, but value investing is often about taking the other side of market sentiment and then hoping that it eventually comes around to your way of thinking. Sometimes it can be a long wait.

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Edward Croft 5th Mar '13 7 of 9

In reply to post #71364

I've been reading that there has never been such a wide disconnect between the valuations of glamour stocks and value stocks as there is now.

 Lo-Q (LON:LOQ) is certainly on a punchy valuation - what surprised me looking at the Stock Report is that it's actually only growing at the median EPS Growth rate for the entire market ! 

I have to hat-tip David Stredder for calling LOQ his favourite share in the market when met him at a Motley Fool gathering deep in the mire of winter 2008.  

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Aubrey Brocklebank 5th Mar '13 8 of 9

Hi Paul,

Thought you might like to see my take on Cupid's results here:

And if you imagine the directors sells say it all then what will happen when the lockin expires later this year?

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Paul Scott 7th Mar '13 9 of 9

In reply to post #71381

Hi Aubrey,

Interesting. If you were a fund manager, would you want any Cupid shares on your list of investee companies going out to your fund holders, given the widespread publicity about their apparently unethical (according to the BBC) way of operating, with such unconvincing, almost non-existent rebuttals from the company itself?

We all know that companies reply to allegations with weasel words from PR people, but in this case they barely even denied anything.

I once invested in an unethical company called Invox, when it was on a PER of 3.5, thinking it couldn't go any lower, and believing all the reassurances from the Directors. Funnily enough, there was a big Director sale there too, which was reassuringly explained away. It didn't end well, these things rarely do.

Good luck to anyone who touches Cupid, I think it stinks, based on the BBC reports of unethical conduct, terrible Google reviews from hundreds of people, and the massive Director selling of shares.

This is my personal opinion, not that of Stockopedia.

Regards, Paul.

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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