Small Cap Value Report (10 Mar 2016) - SPRP, RST

Thursday, Mar 10 2016 by

Good morning!

I was rather late in completing yesterday's report, but in the evening I reviewed results/trading updates from 4 more companies, so 8 companies in total. Yesterday's full report is here.

I'm out all afternoon & evening today at a shares conference & dinner, so today's report is shorter & earlier than usual, and there won't be any late updates.

Sprue Aegis (LON:SPRP)

Share price: 264p (down 9.7%)
No. shares: 45.9m
Market cap: £ 121.2m

Update on supply terms - Sprue has agreed to revised terms with its main supplier, full details are given. Helpfully, the company also quantifies the P&L impact. I wish more companies would be as transparent as this, by giving an estimate of profit for the current year, even if it's a wide range;

Retrospectively with effect from 1 January 2016, Sprue has agreed to amend supply terms with DTL, as a result of which the Board now expects that the Company's operating profit for the year ending 31 December 2016 will be approximately £8.3 million, slightly below market expectations

Stockopedia is already showing reduced broker estimates for 2016, since a decline in last year's bumper sales to France is not expected. So a consensus of £ 8.06m profit is currently showing. That's in the same ballpark as the £ 8.3m operating profit from the company today, so the financial impact seems modest.

The detail given of changes to contract terms look perfectly reasonable to me - adjustments have been made to prices, based on increased wage costs in China, exchange rate movements, etc.

However, what concerns me is how dependent Sprue seems to be on Jarden;

Sprue (AIM: SPRP), one of Europe's leading home safety products suppliers, today issues an update on the supply terms with DTL, owned by Jarden Corporation ("Jarden"), the supplier of all of Sprue's own branded smoke alarms and accessories, which also supplies the smoke and carbon monoxide alarms and accessories of BRK Brands Europe Limited ("BRK"), also owned by Jarden, and a substantial shareholder in the Company.

BRK owns 23.6% of Sprue, so their interests are aligned with shareholders in terms of the share price. But there's a massive conflict of interest here, since they will also want to make as much profit as possible on product sales, on which Sprue seems to be highly dependent.

This is not a new issue, I recall discussing this…

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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

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Restore plc is a United Kingdom-based support services company. The Company is engaged in providing services to offices and workplaces in the private and public sectors. It operates in two segments: Document Management and Relocation. Document management includes business streams, such asRecords Management, Restore Shred and Restore Scan. The Restore Shred offers secure shredding and recycling, and operates from over 10 sites. Restore Scan is its document scanning business, which transforms document related processes to manage customers' access to information. Relocation includes various business streams, such as Harrow Green, Relocom, IT Efficient and ITP Group. Harrow Green is engaged in the United Kingdom workplace relocations. Relocom specializes in desktop information technology and trading desk relocation, among others. IT Efficient provides secure data destruction and hardware disposal services. ITP Group collects cartridges from various premises across the United Kingdom. more »

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10 Comments on this Article show/hide all

herbie47 10th Mar '16 1 of 10

Paul, good morning thanks for the Sprue Aegis (LON:SPRP) update. Yes sales in France have fallen in the last HY but "Pleasingly, in the year ended 31 December 2015, UK sales increased by 33% compared to 2014 largely due to higher carbon monoxide detector sales as a result of the introduction of landlord legislation and increased marketing activity by Sprue."

So that has been partly offset by UK sales. I'm surprised the EU has passed a law for all EU member countries

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JohnEustace 10th Mar '16 2 of 10

Regarding Restore (LON:RST) I have placed some contracts for document management and archiving services. It's a pretty fragmented sector with a few large players and lots of small local suppliers. Prices have been falling so it's still cheaper to store paper documents than scan them and archive electronically unless the client's workflow requires immediate access to the content, e.g. on screen in a call centre. So I think there is a real opportunity for Restore to build a strong brand and increased efficiencies through making acquisitions and standardising back offices and systems but I also think their margins will continue to be squeezed.
I held them for a while and took a good profit based partly on the late Jim Slater tipping them strongly in the Telegraph. Your point about growth through acquisition rather than organically makes me wonder how to treat PEG in these cases - it didn't seem to be a concern for Mr. Slater. I see Restore are showing at a PEG of 1.2 now but they were well below 1.0 back when I held them.

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john bradney 10th Mar '16 3 of 10

aldermore reported exceptional results this morning - shares up then down

any comment on this company generally

john bradney

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melody9999 10th Mar '16 4 of 10

I have held RST since around 80p. My key reason for investing was that Charles Skinner was the CEO. Part of the strategy is acquisition.... and it happens to be something that he does very well, supported by a capable management team. In my view the market is valuing RST based on the consistent improvement in earnings.... and the fact that Wincanton was acquired late in 2015 and so 2016 will be the first full year including Wincanton earnings.

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melody9999 11th Mar '16 5 of 10

In addition, scaling the operation means economies of scale so that margins should be maintained

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Paul Burkitt 15th Mar '16 6 of 10

I have also held RST for a considerable length of time - so happy. I also hold Safestore (SAFE) and Lok'n Store (LOK) Obviously RST have a different model to the other two- more value added services- but in the end its about storage - the appetite for which tends to grow over time. I have previously mentioned that I did some consulting for another American group offering the same sort of services - and it was clear that there tends to be good earnings visibility and dividends tend to be progressive. The market is still fragmented (Safestore just bought a smaller competitor) so I tend to have no problem with these acqusitions, especially if the "sheds" are already full of revenue earning documents and tat. These are pretty well annuity businesses
I also like that RST decided to sell the Irish element of the assets bought from Wincanton - shows that their main focus is on the markets they understand and it significantly reduced debt levels

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PhilH 18th Apr '16 7 of 10

A brutal response today to the Sprue Aegis (LON:SPRP) profit warning, down 40% at this time!


Not a holder but I have done well with them before and wonder about potential going forward when they acquire certification.

Commiserations to any holders.


Professional Services: Sunflower Counselling
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gus 1065 18th Apr '16 8 of 10

At first read it looks quite a shocking profit warning - almost the smell of a kitchen sink approach you get when new management take over, except that here we still have the same incumbent management.

Digging a little deeper, the battery warranty claims provision seems to be taking a very conservative approach (full provision for next 6 years taken through this year's P&L with no suggestion of recourse back to the battery manufacturer). The German certification issue is maybe more of an issue given this is seen as a big growth market. It would have been nice to see some guidance on how long they expect it will take to resolve.

Either way a 40% share price fall is pretty brutal. May well prove to be another falling knife, especially if bad things come in threes after the previous warning over shared FX costs with their main supplier, but I've taken a small top up this morning at 164p.


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Carcosa 18th Apr '16 9 of 10

I don't really know much about the company's products other than a cursory look on their website. Seems the battery only affects one of their product range (?) In 'the real world' will not people simply forget there is a warranty claim available three years from purchase? Also, just looking on ebay, the cost of these items are less than twenty quid so if it was me I would just throw it away after three years and then buy a replacement.

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herbie47 18th Apr '16 10 of 10

In reply to post #128051

I don't think the battery issue is the problem, its the France and German trading. I sold all mine when the Chinese costs went up a few weeks ago. The shares are now down 46%.

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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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