Small Cap Value Report (1 Apr 2015) - RGD, GLOK, WIN, QPP, NARS, AXS, LTHM

Wednesday, Apr 01 2015 by

Good morning! I've been racking my brains to come up with an elaborate, RNS-related April Fools, but can't think of anything sufficiently funny, so will have to pass on that opportunity until next year. Although I would have assumed that Rob Terry buying 7% of Daniel Stewart was an April Fool, if the news had been issued today instead of yesterday!

I had a second wind last night, and added some more company sections to yesterday's report, so the full report is here.

Real Good Food (LON:RGD)

Share price: 36p (down 16.7% today)
No. shares: 69.6m
Market Cap: £25.1m

Profit warning - the company has issued a trading update the day after its 31 Mar 2015 year end. It's quite a bad profit warning too, so I'm surprised the shares haven't gone a lot lower - a 16.7% fall seems mild considering;


The largest subsidiary, Napier Brown, which represented just over 60% of group turnover for the last interim accounts, is up for sale;


My opinion - regulars might recall that this is one of my least favourite companies - it has everything I try to avoid - high debt, pension deficit, low margins, supplying supermarkets, it's capital intensive, has a legal dispute, subject to volatile raw materials prices, doesn't pay divis, etc.  It's a complete mystery to me why anyone would want to own these shares.

Putting its biggest division up for sale suggests to me that the bank might be getting jittery & want to reduce their exposure, perhaps? Although a smaller, but less indebted group, would make a less unattractive investment proposition, so I shall await developments. In the meantime, I'm putting it on my bargepole list, as it's too high risk to consider as investable, in my opinion.

Global Lock Safety International Co (LON:GLOK)

Suspension - Allenby Capital has resigned (so things must be really bad!) as NOMAD to this tiny Chinese AIM-listed stock. So the company has one month to find another NOMAD, otherwise its listing will be cancelled. Let's hope they are unsuccessful in that endeavour, as waving goodbye to Chinese AIM stocks is something that should very much be celebrated.

Wincanton (LON:WIN)

Share price: 157.5p
No. shares: 121.7m

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Real Good Food plc is a food manufacturing and distribution company. The Company is engaged in the sourcing, manufacture and distribution of food to the retail, foodservice and industrial sectors. The Company's segments include Cake Decoration, Food Ingredients and Premium Bakery. The Company’s Cake Decoration segment manufactures, sells and supplies cake decoration products and ingredients for the baking sector in the United Kingdom and abroad. Its Food Ingredients segment manufactures and supplies a range of food ingredients, such as chocolate coatings, sauces, jams, dry powder blends and snack bars to the retail, wholesale and foodservice sectors. Its Premium Bakery segment manufactures, sells and distributes bakery and dessert products to the United Kingdom retailers and foodservice customers. more »

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Wincanton plc is a provider of supply chain solutions. The Company operates through two segments: Retail & Consumer, and Industrial & Transport. Its Retail & Consumer segment focuses on consumer products business and brings to customers through the entire supply chain from producer to retailer, and Industrial & Transport segment focuses on an integrated and optimized transport operation, and includes Containers business and Pullman business. Its Pullman business provides transport and fleet services. The Company provides its services to a range of sectors, such as retail, which includes fashion logistics, e-commerce, food, health and beauty, leisure and lifestyle, consumer electronics and paper products, as well as manufacturing, which includes water, milk and bulk food, construction, consumer goods, energy and defense. The Company provides a range of services, including road transport, warehousing and value added services. Its value added services include packaging and consultancy. more »

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  Is LON:RGD fundamentally strong or weak? Find out More »

16 Comments on this Article show/hide all

Thegrimester 1st Apr '15 1 of 16

Hi Paul,

I think we are all dying to know your thoughts on the other suspension today. Any chance you have closed your short and can comment?

Appreciated as always

P.S Anyone know why is the Company name is shown as AIM (anything other than a typo)

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dasv 1st Apr '15 2 of 16

WIN - I mentioned this on Twitter to Ed Croft but it seems bizarre to me that WIN should still command a 97 for its value stockrank with a negative book value per share of -220p (negative).
Value rank is calculated by averaging the following but ignores negatives, and nulls/zeros:-

•Price to Book Value
•Price to Earnings
•Price to Free Cash Flow
•Dividend Yield %
•Price to Sales
•Earnings Yield %

So WIN's Negative Book value is ignored as is its non existent dividend yield.

Dear Ed, Please change value rank to mark down co's with negative books at least. It would be nice if it factored in zero divis too.

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Paul Scott 1st Apr '15 3 of 16

In reply to post #95821

Hi Thegrimester,

I wasn't intending on commenting on Quindell (LON:QPP) but you gave me a nudge, and I thought why not? I'm no longer short, so am free to comment on it. See the new section above.

Regards, Paul.

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purpleski 1st Apr '15 4 of 16


Thanks for adding the comments yesterday about Christie (LON:CTG). Very interesting and gives me food for thought. It has done very well for me over the past 3 years and I have taken some profits but maybe it is time to take some more.



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Thegrimester 1st Apr '15 5 of 16

In reply to post #95836

Just wow.. thanks Paul.

but what about todays suspension. Do you think the deal is still going ahead?

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Paul Scott 1st Apr '15 6 of 16

In reply to post #95842

Hi Thegrimester,

but what about todays suspension. Do you think the deal is still going ahead?

I assume the deal at Quindell (LON:QPP) is still going ahead, SGH seem committed to it.

The suspension announcement today says the shares have been "temporarily suspended on AIM pending an announcement and publication of a document", and QPP has published the circular on its website, so I just assumed that was what it is referring to.

Seems odd that the shares are still suspended though, I would have expected them to have come back by now.

Regards, Paul.

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Thegrimester 1st Apr '15 7 of 16

it seems there was some mistake in the circular. I would guess a big one if they just cant issue a correction.

Maybe this soap opera has been commisioned for another series!

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cojode 1st Apr '15 8 of 16

Hi Paul
I think you mentioned on twitter that you were going to review INL's latest results.Is that still the case?

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Paul Scott 1st Apr '15 9 of 16

In reply to post #95851

Hi cojode,

I had a quick look at results from Inland Homes (LON:INL) but didn't feel I could add any value, as it's a tricky one to evaluate - you can't really value housebuilders on a PER basis, because they are making artificially high profits at the moment, arguably. So valuing on a build-out basis is probably the best way (discounting future net earnings on to existing NAV).

Also, INL has some off balance sheet assets.

So I reckon it's probably best to just get hold of the latest broker note and let them do the work for me! I took my profits on Inland a few weeks ago, and no current plans to revisit.

Regards, Paul.

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Paul Scott 1st Apr '15 10 of 16

In reply to post #95848


A fresh statement has just out from Quindell (LON:QPP) - correcting some relatively unimportant errors in the earlier circular.

Points to note;

- £500m distribution will be done in a tax efficient way (good),
- the businesses being retained made an £8.5m profit in H1 of 2014 (good).

So overall, I think this is fine, panic over! I'll read it again, just to be sure.

Shares will resume trading at 3:45pm today.

Regards, Paul.

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CliveBorg 1st Apr '15 11 of 16

Someone posted an April fool about QPP's suspension being extended to the 17th. Made me laugh anyway.

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Edward John Canham 1st Apr '15 12 of 16

WIN - dasv's comments on the methodology of calculating the Value Rank are absolutely logical.
I, for one, will view the Value Ranks with suspicion until his comments are taken on board.
Unfortunately,this suspiscion will obviously flow over into the combined Stock Rank, which hitherto
has benn a key metric to me

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crazycoops 1st Apr '15 13 of 16

There was a debate about this a few weeks ago but I don't think anything changed as a result. FWIW, I wholeheartedly agree with dasv's comments:

Dear Ed, Please change value rank to mark down co's with negative books at least. It would be nice if it factored in zero divis too.

Blog: Share Knowledge
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Edward Croft 1st Apr '15 14 of 16

In reply to post #95872

We've had a lot of debates over the Value Rank and I appreciate everyone's input and feedback on its composition. We take an academic line here, but I do appreciate this may not be to everyone's taste - it has though been highly effective.

We've done the calculations mentioned on Wincanton, and including the -ve BV in the P/B factor would only drop the overall StockRank down to about 95 rather than 98.  I'm sure that plenty would still be rubbed raw by that ranking - but that's the nature of statistical methods. Wincanton did return about 150% from the date it first entered the 90+ StockRank bucket, so I don't think this point case is a reason to apologise for our methodologies.

There's certainly an argument to calculate all our inputs (P/E, P/B etc) as yields as we do for the earnings yield so that -ve values are (perhaps) better accounted for - and this is something we are assessing.  I would though stress that most people are thinking about the StockRanks in the wrong way - they are fixating on the StockRanks of individual stocks rather than thinking about them across baskets of stocks.  I've written extensively on this key point and I stress for everyone to read up again in this article.  The StockRanks are not about individual point-cases... they are about portfolios - these are not stock specific ratings

The ValueRank has worked extremely well to date, is based on very robust literature, and if history holds (and the value anomaly persists) baskets of 'cheap' stocks can be expected to continue to outperform over the long term.  Here's the annual performance of the ValueRank for £10m market cap companies across deciles since launch in the UK.  


Here's the ValueRank performance across the entire EU with the same criteria:


Cheap, by our methodology, has beaten expensive hands down.  We can tweak the formula, but I don't necessarily expect a better output.  

(In fact - there's plenty of academic evidence that -ve book value stocks actually outperform... so I do want empirical proof of upside before we tweak what is clearly a working model ! )

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cig 1st Apr '15 15 of 16

In reply to post #95878

Have you thought about trying alternative presentations to nudge people into understanding the ranking nature of the stock rank? It's very natural to interpret the current system as an absolute metric.

For instance, just inverting the scale and showing it as a percentile (1=first percentile/best stock, 100=last percentile/worst stock) may already help...

Or maybe a ratio of worse:better -- e.g. 1:1 is the median, with an equal number of better and worse stocks, 10:1 the one on the first decile boundary, etc.

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Ramridge 1st Apr '15 16 of 16

Hi Ed

"  I would though stress that most people are thinking about the StockRanks in the wrong way - they are fixating on the StockRanks of individual stocks rather than thinking about them across baskets of stocks "

If that is the case, I would suggest that you are simply making this misconception worse by showing the StockRank at the top right hand corner of every stock's Stock Report page. It is natural for a reader to make this 1:1 connection.

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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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