Small Cap Value Report (10 June 2019) - DIS, CDM, WPCT, TRD, ACRL, ALM, AVN

Monday, Jun 10 2019 by

Good morning!

Some things  on my plate today:



Distil (LON:DIS)

  • Share price: 1.775p (-7%)
  • No. of shares: 502 million
  • Market cap: £9 million

Final results

(Please note that I do not have a holding in Distil, having sold my holding today.)

I've been at my desk for a couple of hours already this morning, prior to writing this, trying to generate a firm view on Distil's results.

In the end, I've sold out my entire position.

Regular readers will know that I hate selling things. Especially illiquid micro-caps with a wide spread. My default position is to hold on to things for as long as possible.

Indeed, this is my very first sale of 2019. I was proud of having gone nearly six months without making a single disposal.

What's happened?

Distil is a small developer of alcohol spirits brands, and has delivered results today which are in line with the forecasts from Progressive Research. Sales are up 19% and the company has generated profits for the second consecutive year: £160k in operating profit, around the same as last year.

I can summarise the good points in today's statement:

  • Growth in sales volume of Redleg Spiced Rum accelerates to +45%. Has attracted a loyal customer base. "Very positive" reponse to the new Caramelised Pineapple flavour.
  • Again with respect to Redleg: there is "increased availability across all trade channels but especially in the growing number of independent bars, pubs and restaurants serving RedLeg Spiced Rum."
  • Group gross margins (before advertising costs) improve to 60%.
  • The cash balance improves slightly and continues to stand in excess of £1 million.

Unfortunately, there are a few reasons for concern, in my view.

Firstly, the non-Redleg brands performed very poorly. I didn't place much value on them, anyway, but even so: revenue from Blackwoods Gin has…

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

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Distil Plc is a United Kingdom-based holding company. The Company is engaged in marketing and selling of Blavod Black Vodka, Blackwood's Gin and Vodka, Blackwood's Limited Edition Vintage Gin, Diva Vodka, Jago's Vanilla Cream Liqueur and RedLeg Spiced Rum domestically and internationally. The Company markets and sells its brands in various international markets, including the United Kingdom, the United States, Germany, Spain, Australia and Russia. RedLeg is a premium Caribbean rum, infused with spices. Jagos is the vodka-based cream liqueur with a vanilla cream flavor made with whole cream. Blavod is made using grain vodka, triple distilled and double filtered. The Company's subsidiary is Distil Company Limited. more »

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Codemasters Group Holdings PLC, formerly Codemasters Group Holdings Limited, is a United Kingdom-based video game developer and publisher. Through its subsidiary, The Codemasters Software Company Limited, the Company designs, develops and produces driving and racing games. The Company’s driving and racing games include DiRT, GRID, Micro Machines, ONRUSH and Formula 1 series of videogames. It produces Formula One’s range of games for the Playstation 4 console. more »

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Woodford Patient Capital Trust PLC is a closed-ended investment company. The Company's principal activity is investment in quoted and unquoted equities of companies incorporated or listed predominantly in the United Kingdom. The Company's investment objective is to achieve long-term capital growth through investing in a portfolio consisting predominantly of the United Kingdom companies, both quoted and unquoted. The Company is focused on investing in mid and large-capitalization listed, mature companies; early-stage companies, which are typically quoted and unquoted companies. The Company's portfolio is diversified across various sectors, which include healthcare, financials, industrials, technology, consumer goods and telecommunication industries. The Company's portfolio manager is Woodford Investment Management Ltd. more »

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

30 Comments on this Article show/hide all

Asagi 10th Jun 11 of 30

there doesn't seem to be much sympathy for investors

is that fair, timarr? Luke Johnson was an investor here and by far the biggest victim in cash terms. Furthermore, it seems he will have lost much of the emergency funding he put up to save many jobs. He has (allegedly) been ripped off by people he likely considered friends. Given all of that, it seems a bit ungracious to be asking for sack cloth and ashes.

I narrowly escaped a loss here and count myself lucky.


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timarr 10th Jun 12 of 30

In reply to post #482421

is that fair, timarr?

Well, it was hardly the most vicious of criticisms, given that he and his fellow directors were asleep at the wheel over many years ... directors have a responsibility to all shareholders, not just themselves, a point they seem to frequently forget. And, remember he was, in contravention of good governance practice, Excecutive Chairman at Patisserie Valerie: ultimately the buck should stop with him.

And, finally, LJ made over £20 million out of Patisserie Valerie while he was invested there: he's not lost anything on this investment ultimately. So no, I don't think noting that he doesn't seem to recognise his duty of care to other shareholders is unfair criticism.


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Wimbledonsprinter 10th Jun 13 of 30

In reply to post #482406

Frederick, I hold Triad (LON:TRD) so I too see value. The valuation is very low EV/ EBITDA around 2x and over half the market cap made up of genuine cash on balance sheet. But I don’t really see a catalyst to realise that value - the increase in the div (up to 3p for the year - around 7% yield) should provide some downside protection, particularly as the div is very well covered by earnings and FCF.

However, I am not buying more as I can’t see who would buy this company (the surest route to realise value), given the DD that would be needed involving the history of the shareholder disputes. Also I am unclear how big an effect the reforms on off-rolling consultants will have on the business, when they come into effect next year.

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Asagi 10th Jun 14 of 30

So no, I don't think noting that he doesn't seem to recognise his duty of care to other shareholders is unfair criticism

I think that is about fair. If anything, my response was aimed at many of his other critics who don't seem to recognise the points I raised before getting stuck in.

It would be a bit unfair to claim that he was 'asleep at the wheel'. The allegation is that he was presented with fabricated accounts. The details of the investigation that have been placed in the public domain suggest that there may have been collusion among multiple staff members to present shareholders with a false view of the company's health. All with a clean bill of health from the auditor.

Remember, it was expanding all along, which made the fraud easier to believe!


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dmjram 10th Jun 15 of 30

In reply to post #482426

Indeed. Don't forgot how he treated shareholders with Interquest either.
Quite why the Sunday Times thinks he has anything credible to say in his resurrected column is something of a mystery.

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jonesj 10th Jun 16 of 30

Thank you for your thoughts on Distil (LON:DIS) Graham.

I spent some time looking at this today. Distil seem to have been failing to meet Progressive Equity Research forecasts quite frequently in recent years.
For instance, in June 2014, the forecast PBT was 0.2m for 2016. Result was -0.1m. Even the best ever result today remains below the forecast for 2016. So I shall dis these forecasts.

Advertising has increased to almost 29% of turnover, so it is hard work shifting this product.
Share count has increased over 5 years.
Not much director buying.

No position & no plan to add one.

[After reading your article, I was mildly annoyed that Amazon did not give a drop down menu option to sort Rum by best selling product.    However, googling "amazon UK best selling spiced rum" does the trick.]

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Howard Adams 10th Jun 17 of 30

In reply to post #482376


Building on the points above with regard to Codemasters Group (LON:CDM).

This news .....

Microsoft says the next Xbox will arrive late next year, and it'll have faster loading times and incredible graphics hardware ....

... might continue to encourage the growth of games produces such as Codemasters Group (LON:CDM) Frontier Developments (LON:FDEV) and others (not my field so not familiar with others).

I have held both Codemasters Group (LON:CDM) and Frontier Developments (LON:FDEV) in past. Just re-entered Codemasters Group (LON:CDM) with small entry position.


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Howard Adams 10th Jun 18 of 30


Outside the SCVR market cap., but might interest investors interested in the food retailers. This about Ocado (LON:OCDO) ....

Ocado invests £17m in vertical farming

It seems there is quite a flurry of innovation going on with these food selling giants. Cashless stores from Amazon, self-bagging dry products to reduce waste in Waitrose, various experiments with different delivery mechanisms, intensive uses of technologies to sustain margins whilst elevating customer services (and thus satisfactions).

Not a sector I really invest in, but very interested to look into the companies which might be viewed as the 'spades' behind the changes as these might offer opportunities.


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hayashi22 10th Jun 19 of 30

In reply to post #482396

ConvaTec is a large company in the healthcare space..recent results were poor and a new ceo was brought in to make changes. I see the termination of the Scapa (LON:SCPA) contract as being linked to those changes. There will be few people who really know the full story or be willing to talk about the nitty gritty at this time. But it should allow Scapa (LON:SCPA) to recover monies in due course dependent on how watertight was the wording of said contract. Unfortunately larger companies hope to wear down smaller companies with legal costs to make them go away. Nontheless your timing looks good especially after the ceo news today.

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Trident 10th Jun 20 of 30

It is in the nature of certain entrepreneurs to come back out 'fighting', and obviously Luke Johnson and the Sunday Times have sniffed the air, and think there is an opportunity for a re-launch.

I think Paul has highlighted before certain operations in which LJ was happy to consider his own interests first, and I have no expertise in what those situations were. However, I did used to generally enjoy LJ's articles, as they very often spoke to real experience.

But if I were a Patisserie Valerie shareholder, I would find it hard to stomach blandishments about wiping the slate clean. I wonder what recommendations LJ would make for corporate change in the light of his experience, as he seem pretty keen previously to dissent against corporate governance issues when it happened on his watch.

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tomps3 10th Jun 21 of 30

More company presentations added to the Mello London May 19 company recordings page, here.

We've added Avation (LON:AVAP), National Milk Records (OFEX:NMRP) & Circle Property (LON:CRC).  

Still more to follow, this page gives the total list of those companies recorded.

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Gromley 10th Jun 22 of 30

In reply to post #482396

It is commendable that Scapa (LON:SCPA) have promptly clarified the financial impact of the contract loss. The 10% rise this morning I think indicates the value of clarity.

However, I note that the current year impact at £13m PBT is above the top of the range of my original estimate  and the -29% derived by Paul is well above the 10% that I think was initially cited by analysts on the day.
(Also bear in mind that my 'range' was based on full year impact, whereas the company I believe is correctly basing their numbers on this impacting 10 month of the current FY.

These numbers also do not include any exceptional restructing costs that will result.

I also do not buy the suggestion that ConvaTec (LON:CTEC) have jumped ship for a lower priced offer for two reasons :

> It would have to be one heck of a reduction to offset the costs of litigation, management distraction and potential compensation payments.
> Unless both parties were determined to play destructive hardball, then there would likely have been some accomodation reached (eg reduced price in return for a longer commitment).

Rather I come back to the observation from Convatec "Performance in the US continued to be below expectations, driven primarily by weak sales of surgical cover dressing". A potential reading of this could be that convatec are withdrawing or reconfiguring the product - if this is the case then could there be a risk that other customers for the 'tape' might also take similar steps. Huge conjecture there I admit, but if I were invested here, I would want to be sure that was not true.

So I think there is still too much risk to the downside here for me to be interested personally.

If however, the company navigate this mishap without significant impact, it will add to the qualitative quality credentials of the company and the management - although how much of that cudos will be due to the (now staying on) CEO will presumably depart once this has resolved.

Definitely a watch and wait for me.

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Wimbledonsprinter 10th Jun 23 of 30

In reply to post #482486

It is always said one learns more from one’s failures than from one’s successes. I guess it depends on the individual. But, in principle, I would be more tempted to read a Luke Johnson article now than before.

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SundayTrader 10th Jun 24 of 30

In reply to post #482501

A revenue hit of £28m sounds to me like a lot in the context of total revenue of £300m. Given the company's business - medical and industrial adhesives and tapes - I am surprised at as much as 10% of sales going to one customer. Personally I favour companies with a wide spread of customers and industries, I thought Scapa (LON:SCPA) fitted that pattern but clearly I was wrong. Have they been spending too little on new product development, and been left behind? So wait and see.

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Graham Neary 10th Jun 25 of 30

In reply to post #482461

re: Distil (LON:DIS)

Thanks for the historical context, jonesj. I live and learn. G

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Graham Neary 10th Jun 26 of 30

In reply to post #482406

re: Triad (LON:TRD)

Hi frederick,

Yes, I see "value", absolutely, but I can't get past the sector it's in, or think of what its competitive advantages might be. Perhaps the problem lies with my own lack of imagination.



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RobC 10th Jun 27 of 30



I don't understand why the  WPCT's Board should be concerned about EIF selling.  WPCT is a closed-end fund and redemptions are irrelevant. Further, the Board can wait out the forced sales by EIF temporarily depressing any  shares held in common by both funds.

The sale of illiquid holdings in Woodford's equity funds to WPCT earlier this year was a much bigger issue for the Board in respect of potential conflict of interests within the Woodford group and the purchase price of the illiquid assets.

It seems to me that the main issue for a WPCT investor is that the name contagion has likely opened up a large discount (c.27% today).  The main decision for a (brave) investor is if-and-when to take advantage of this discount.

[Disclosure: I hold WPCT ]

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Effortless Cool 10th Jun 28 of 30

In reply to post #482586


My view is that the "discount" you cite is illusory. The unquoted (or fake quoted) assets that dominate the Woodford Patient Capital Trust (LON:WPCT) portfolio are, in my opinion, on ludicrously high valuations that there is no chance of realising.

I remain short.

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Graham Ford 10th Jun 29 of 30

Yes, the valuations of Woodford Patient Capital Trust (LON:WPCT) companies could change very quickly, particularly in highly speculative healthcare holdings. Even the success stories like Purplebricks (LON:PURP) can head South once the euphoria dies away.

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william westgate 13th Jun 30 of 30

I don't consider myself to be a value investor (what a painful game that can be) and I am only a contrarian selectively (sometimes when everybody's bearish, everyone is right) but as I look through the wreckage of Woodford Patient Capital Trust (LON:WPCT) trading at 60p while hysteria sweeps through the media, I can't help but be tempted into a cheeky purchase. I have found that in these situations - when risk aversion hits such an extreme - all it takes is for the very worst-case scenario to be taken off the table for a market to rally, sometimes sharply. Back up to par? Probably not any time soon. But a pop back above 70? Not so fanciful.

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 Are LON:DIS's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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