Small Cap Value Report (10 Feb 2017) - ECM, GNK, JE., RB

Friday, Feb 10 2017 by

Good morning,

It looks like a  quiet news day in terms of the universe of stocks we usually cover here. I'll see what I can come up with - or let me know if you have any suggestions.



Electrocomponents (LON:ECM)

Share price: 499p (-1%)
No. shares: 441m
Market cap: £2,200m

Trading Update (for the four month period ending to 31 January 2017)

Revenue growth looks like this:


This company has always seemed to have a bit of a low profile among investors, but it's a really good distributor - "the world's leading high-service distributor for engineers", dealing in over half a million products.

The shares have gone on a tear higher this year (they started January around 220p) so it's not in the bargain bucket by any means, but it claims to be the leading distributor in the UK, Europe and Asia-Pac. That's a position which is worth a premium rating, in my book.

Non-GBP income means that this is one of the stocks which has provided fantastic GBP devaluation protection for investors:

We continue to expect FY 2017 revenue and profits to see a significant benefit from foreign exchange(2) and additional trading days(3).

Checking the footnotes in today's statement:

Our profits remain sensitive to movements in exchange rates on translation of overseas profits. Positive currency movements increased H1 profit before tax by around £7 million. Assuming current (31st January) rates persist for the rest of the year, the full year currency benefit will be around £18 million. Every 1 cent movement in the Euro will have a circa £0.9 million impact on profits. Every 1 cent movement in US $ will have a circa £0.3 million impact on profits

So that's a huge FX benefit, and the final footnote tells us that there will be a £10 million benefit to revenues from additional trading days in this financial year.

So the results are a bit messy but ECM has "typically" earned at least £60 million per year in net income, and Stocko suggests that the forecast for 2017 is £82 million.

No matter which way you look at it, it's on an above-average PE rating, but it's a very solid business which should hopefully continue to trade well for many years to come.


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All my own views. I am not regulated by the FSA. No advice.

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Electrocomponents plc is a service distributor. The Company's segments include Northern Europe, Southern Europe, Central Europe, Asia Pacific (APAC) and Emerging Markets, and North America. Its Northern Europe's hub is the United Kingdom, with associated local markets in Denmark, Norway, Sweden and Republic of Ireland. Its Southern Europe's hub is France, with associated local markets in Italy, Spain and Portugal. Its Central Europe's hub is Germany, with associated local markets in Austria, Switzerland, the Netherlands, Belgium, Poland, Hungary and the Czech Republic. Its North America's hub is the United States of America, with an associated local market in Canada. Its Asia Pacific and Emerging Markets has a hub in Hong Kong and local markets in Japan, Australia, New Zealand, Singapore, Malaysia, Philippines, Thailand, Taiwan, People's Republic of China, South Korea, Chile, South Africa. Its product categories include semiconductors, and Automation and Control. more »

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Greene King plc is an integrated pub retailer and brewer. The Company operates approximately 3,040 managed, tenanted, leased and franchised pubs, restaurants and hotels, including brands, such as Hungry Horse, Chef & Brewer, Flaming Grill, Farmhouse Inns and its Greene King locals estate. The Company's segments include Pub Company, Pub Partners, and Brewing & Brands. The Pub Company segment is engaged in the operation of managed pubs and restaurants. The Pub Partners segment is involved in the operation of tenanted and leased pubs. The Brewing and Brands segment is engaged in brewing, marketing and selling beer. The Company's ale brand portfolio includes Old Speckled Hen, Greene King IPA, Abbot Ale and Belhaven Best. The Pub Company segment operates approximately 1,820 pubs and restaurants across Britain. The Company's breweries include Westgate Brewery, which is located in Bury St. Edmunds, and Belhaven Brewery, located in Dunbar. more »

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Just Eat plc is a United Kingdom-based operator of digital marketplace for takeaway food delivery. The Company's segments include the UK, Australia & New Zealand, Established Markets and Developing Markets. The Established Markets includes Benelux, Canada, Denmark, France, Ireland, Norway and Switzerland. The Developing Markets includes Italy, Mexico and Spain. The Company's restaurant partnership program provides products and services to its estate, such as food, soft drinks, card processing, wireless fidelity (Wi-Fi), broadband, motorbike insurance, business rates advice and finance funding. Its subsidiaries include Just Eat Holding Limited and JUST EAT Central Holdings Limited. more »

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  Is Electrocomponents fundamentally strong or weak? Find out More »

25 Comments on this Article show/hide all

runthejoules 10th Feb 5 of 25

In reply to FREng, post #4

That'll be because every time twitter fails it rebounds on takeover bid rumours, so some investors are probably holding on for that. The only person I can see taking over twitter is Trump himself.

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Michael Billingham 10th Feb 6 of 25

Investors have taken your comments to heart re Brainjuicer (LON:BJU) - Brain juicer (which I hold) - you suggested that "today's valuation does not leave much margin for error" - and lo! - they are down at least 6% today, despite carrying a good StockRank.

I think it's time I sold.


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tabhair 10th Feb 7 of 25

ST Ives (LON:SIV) came out with results on Wednesday, I notice Paul didn't cover it. It's one I have on my radar, although I have never owned, nor would want to really hold long-term. However it does look like a share that you can buy when it's cheap and sell when it recovers. Thoughts?

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crazycoops 10th Feb 8 of 25

The problem with Brainjuicer (LON:BJU) is twofold. Shares wise, they are very illiquid and therefore, the price moves either way quite dramatically on small volumes. Business wise, they don't have a very high proportion of recurring revenues and therefore, the so called ad hoc nature of revenues means there is always the risk that they will not meet guidance.

There are many plus points though. The most compelling to me (not covered by Graham yesterday) is that they could easily be a takeover target for a larger US group looking to acquire their System 1 technology. For now though, the investment case relies on the company continuing to generate ad hoc sales (and let's face it, that is true of most businesses) which have been growing nicely in recent times. Personally, I believe they are in the right space at the right time and am therefore happy to continue holding.

Blog: Share Knowledge
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JohnEustace 10th Feb 9 of 25

In reply to runthejoules, post #5

I agree - I've said before Twitter is toxic as an investment. It makes no money, brings huge reputational risk and quite a few people have already looked it over and walked away. It will find a buyer eventually I guess - perhaps someone who can use the huge accumulated losses to offset their tax bill? Though even that could depend on whatever changes to corporation taxes Trump comes up with.
As for Snap going to IPO with shares that have no voting rights, that is well beyond the pale in my view.

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cafcash49 10th Feb 10 of 25

A share I would value some comments on is Van Elle (LSE:VANL) It looks good to me but some are more perceptive than me but I can't see much wrong with it and have just bought in.

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asanford98 10th Feb 11 of 25

In reply to BH1991, post #2

Hi, I bought some shares last week. I don't understand this takeover news means?
Can anyone explain please.

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FoolishBen 10th Feb 12 of 25

Hi Graham. I know they couldn't be further from small cap but if you have the time I'd be really interested to know what you think of £RB results today as well as the takeover announcement. They are a core holding for me but wondering if they are looking a bit pricey now....

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willhampson 10th Feb 13 of 25

Hi Graham, if you have time - and I know its far from a small cap - but I would be very interested to hear your views on Just East (LSE:JE.) and the news that broke today re the CEO stepping down for family reasons. Many thanks in advance.

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Graham N 10th Feb 14 of 25

Hi there ben, I was planning to have a look at RB anyway so I think I will go ahead and do that.

Will, JE is a Paul specialty but I will make a note of that in the report.



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tomps3 10th Feb 15 of 25

In reply to cafcash49, post #10

cafcash49 Van Elle Holdings (LON:VANL) are featured as a "buy" (at 111p) in Investors Chronicle this week:

Robbie Burns also mentioned in his newsletter yesterday, that he bought more on the dip, following results.

The IC article says the dip on H1 results were, "due to days earlier the company was informed of a possible liability related to payments due to a former employee. No further details have been made available, although analysts don't expect the issue to affect ongoing business."

The RB and IC effect means the shares are up to 120.5 today.

(Disclosure: I held before the results, and topped up on the dip.)

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FREng 10th Feb 16 of 25

I wonder whether Just Eat (LON:JE.) will be affected by the court decision today about the employee status of Pimlico Plumbers' "self employed" staff. Other cases are pending. The gig economy may be starting to come unbuttoned.

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Julianh 10th Feb 17 of 25

In reply to wildshot, post #1

Re: S&U (SUS)
Agreed. I'd be very interested in what you think of them Graham. As far as I know Paul has never covered them because he doesn't look at financials. And the Stockopedia rankings don't seem to do S&U (or financials in general) justice. A quality rank of 34 for a company that has a very high return on capital, very high operating margin makes no sense to me.
S&U seems to be a very well run company. Their total return (share price increase plus dividends CAGR over five years is 29%. The share price has fallen since the Brexit vote, presumably because investors are concerned that car sales will fall if there is a post Brexit recession or as a result of the increase in the price of new cars following the fall in the value of the £. Nonetheless, S&U's results look great to me and their main business - financing for the purchase of used cars - might not be affected by any fall in the sales of new cars.

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Carey Blunt 10th Feb 18 of 25

In reply to cafcash49, post #10

Can't see anything wrong with Van Elle Holdings (LON:VANL) except it was maybe too illiquid due to its size. I bought in a few weeks ago but got out 12% down as it drifted lower. If it continues to sink I may look for another entry point.

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Paul Scott 10th Feb 19 of 25

In reply to tabhair, post #7

Hi Tabhair,

I reported fairly thoroughly (and negatively) on ST Ives (LON:SIV) here on 19 Jan 2017.

It's not a good stock at all in my view - poor balance sheet, and profit warnings, unsustainable divis, etc.

I can't see any reason to get involved.

Regards, Paul.

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Ramridge 10th Feb 20 of 25

Re. Just Eat (LON:JE.) David Buttress was the driving force behind the huge growth of this company. He set the strategy and direction and led Just Eat to what it is now.
I think they will find it difficult to find someone to fill his shoes.

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Paul Scott 11th Feb 21 of 25

In reply to Ramridge, post #20

Personally I wouldn't touch Just Eat (LON:JE.) - it's a parasitic business model, which rips off small businesses - takeaways, whose real relationship is with the end customer, cooking our dinner. The best thing everyone can do is to place orders directly with the small takeaways, and cut JustEat out of the chain altogether.

We need to support local people, and local jobs, not be lazy & do everything on a smartphone, and end up lining the pockets of greedy & unnecessary intermediaries such as JustEat.

Regards, Paul.

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tournesol 11th Feb 22 of 25


hear hear couldn't agree more


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LongbeardRanger 11th Feb 23 of 25

In reply to Paul Scott, post #21


Not sure I follow the argument here. No takeaway has to use Just Eat's service. Presumably they choose to do so because Just Eat offers access to orders they wouldn't otherwise receive, and a technology platform (and adverising clout) they wouldn't otherwise have the finances or capability to develop.

Increasing orders via phone/internet are simply inevitable IMHO, whether we like it or not - in that context it seems to me difficult to say Just Eat are parasitic....without the likes of Just Eat, aren't the small takeaways just going to see their business eroded by large chains such as Domino's, who have the capability and finance to develop business models that take advantage of internet ordering?

This also assumes that using Just Eat is zero sum for takeaways, but I don't think that is a given. Isn't it conceivable that by being on the platform, takeaways receive more orders and higher total value per order?

I guess I'm saying it is quite a bit more complicated than you are suggesting.

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Ramridge 13th Feb 24 of 25

In reply to Paul Scott, post #21

Your heart is in the right place, but I am afraid our consumer driven open capitalist system doesn't work that way.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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