Small Cap Value Report (11 Jan 2017 - Part 2) - FOXT, MCB, SGM

Wednesday, Jan 11 2017 by

Hi everyone,

I'm back after a busy few days in London.

This report will cover Foxtons (LON:FOXT), McBride (LON:MCB) and Sigma Capital (LON:SGM).

Today's Part 1 by Paul is here, where he is covering Shoe Zone (LON:SHOE) and Joules (LON:JOUL).

Foxtons (LON:FOXT)

Share price: 95p (-4%)
No. shares: 275.1m
Market cap: £261m

Trading Update (for the year ended 31 December 2016)

Remarkably weak against comparatives:

Total group revenue for the year was circa £133m (2015: £150m), with revenue for the quarter ended 31 December 2016 totalling circa £26m (2015: £35m).

As might be expected, the more cyclical, sales-driven revenue stream is responsible for the weakness, not lettings:

The reduction in Group revenue for the year reflects the significant fall in sales volumes immediately following the first quarter of 2016. In the final quarter of 2016, sales revenues were circa £12m (2015: £20m) as volumes remained subdued. Lettings revenues in Q4 were circa £13m (2015: £13m) and have remained more resilient, benefitting from our high levels of renewals despite lower levels of new tenant activity and some downward pressure on rents arising from increased stock availability.

The outlook statement for 2017 is quite bland, saying that at the current rate of sales activity, "it is likely that 2017 volumes will be below those in 2016". Indeed!

From the previous trading update, I note that Q3 sales revenues were down 34% on the previous year, whereas Q4 sales revenues are down 40%. So perhaps full-year 2017 sales revenues might end up c. 40% down on 2015, unless something changes?

The previous update remarked that the company remained "highly cash generative with no debt". Today's update changes the focus a little bit, mentioning EBITDA margin instead of cash generation. Although it again emphasises that the company remains debt-free.


My opinion: This is a great stock for a pub debate, if you're interested in the London property market (which quite a few people are, unsurprisingly!).

Something which I still find rather unsettling is how the company spent over £28 million on dividends and buybacks in H1 (more than 10% of the current market cap), just as…

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

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Foxtons Group plc is a United Kingdom-based company, which operates as an estate agent. The Company and its subsidiaries are engaged in the provision of services to the residential property market in the United Kingdom. It operates through three segments: Sales, Lettings and Mortgage Broking. The Sales segment generates commission on sales of residential property. The Lettings segment earns fees from the letting and management of residential properties and income from interest earned on tenants' deposits. The Mortgage Broking segment receives commission from the arrangement of mortgages and related products under contracts with financial service providers and receives administration fees from clients. The Company offers its residential property sales and lettings services through its network of approximately 60 branches. It offers independent mortgage advice and other related services through Alexander Hall. It offers corporate services, property management and other services. more »

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McBride plc is a provider of private label household and personal care products. The Company is engaged in developing, producing and supplying its products to retailers across Europe. Its segments include Household, Personal Care & Aerosols (PCA) and Corporate. The Household segment consists of UK; North, including France, Belgium, Holland and Scandinavia; South, including Italy and Spain, and East, including Germany, Poland, Luxembourg and other Eastern Europe. The PCA segment comprises the Personal Care liquids, Skincare and Aerosols businesses of the Company's European operations, and also its activities in Asia. The Company's brands include Surcare, Clean and Fresh, McBride Direct, Limelite and Ovenpride. Its Surcare product range includes Surcare Sensitive Capsules, Surcare Sensitive Non-Bio Powder, Surcare Sensitive Non-Bio Powder and Surcare Sensitive Fabric Conditioner. The Company operates approximately 17 manufacturing sites in over 12 countries. more »

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Sigma Capital Group plc is a holding company. The Company, together with its subsidiaries, is a property group principally focused on the Private Rented Sector (PRS) sector. The Company's activities also encompass urban regeneration and property asset management. The Company operates through three business segments: property, venture capital fund management, and holding company activities. The Company's subsidiaries include Sigma Capital Property Limited (SCP), Sigma Inpartnership Limited (SIP), Strategic Property Asset Management Limited (SPAM) and Sigma Technology Investments Limited (STI). The Company's PRS activities are carried out by SCP and its subsidiaries. Its property regeneration activities are carried out by its subsidiary, SIP, which undertakes property-related regeneration projects, working as a bridge between public and private sector organizations. Its property management activities outside PRS and its local authority relationships are undertaken by SPAM. more »

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  Is Foxtons fundamentally strong or weak? Find out More »

29 Comments on this Article show/hide all

steviej 11th Jan 10 of 29

Foxtons (LON:FOXT) isn't the only one in its sector that has struggled over last 6 months. Countrywide and Winkworth also weak. What most of these companies learnt from last time was to build up the lettings side, which helps to cushion the cyclicality. Although Foxtons (LON:FOXT) should worry about its reputation, if it pops onto one of my new high screens in 6-12 months I'd buy and probably do ok once the tide turns.

McBride (LON:MCB) way too much gearing supported by too thin margins, but I guess it is heading in the right direction.

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CliveBorg 11th Jan 11 of 29

Hi Graham,
Would you, Paul and Stockopedia consider expanding the breadth of your and Paul's reports to also include larger caps? i.e., perhaps Paul continues with small caps while you look at larger caps. Apologies if this idea has already been discussed and I missed it.

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danielbird193 11th Jan 12 of 29

Thanks for another useful report Graham. I think it makes perfect sense for you and Paul to break your coverage down into sectors, it's natural that you each have your specialisms.

I see that one of your sectors will be financials. Just a thought about a future topic for a blog post. There are lots of 'mid-cap' listed banks and insurers on the London market. However I always find it really difficult to value financials because the way they report means many of the conventional P&L valuation metrics are unhelpful, and it's difficult to understand what the true net position on the balance sheet means for future earnings. I realise this might be a bit broad for an SCVR post, but any pointers you could give to other sources of info would be welcomed!

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LongbeardRanger 11th Jan 13 of 29

In reply to tabhair, post #7

Hi Tabhair,

Yes I agree with you. Foxtons (LON:FOXT) has a lot going for it when you look at the numbers in the cold light of day and I think it's quite likely to trade a lot higher at some point over the next five years. No debt is the really critical thing when there's such volatile earnings.

I'm not brave enough to have a position though!


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BlueFrew 11th Jan 14 of 29

The Government announced that they will outlaw the extra fees that Letting Agents charge tenants. Although the proposals don't have much meat on their bones yet, they'll almost certainly reduce profits from lettings. At present tenants don't have much choice but to pay the fees if they want to rent the house. If agents try and make up those missing fees by charging landlords more, then landlords are perfectly able to take their business elsewhere.

No position on Foxtons (LON:FOXT) , however I'd feel safer being short than long.

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Graham N 11th Jan 15 of 29

In reply to FoolishBen, post #5

Thanks a lot for the insight, Ben!

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Graham N 11th Jan 16 of 29

In reply to CliveBorg, post #11

Hi Clive, nice suggestion which I will raise as an idea. I think a sector division probably makes a bit more sense from the point of view of enabling deeper research via industry comparisons, but I personally would be in favour of straying into the mid-caps a bit more frequently.


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Graham N 11th Jan 17 of 29

In reply to danielbird193, post #12

Hi Daniel, good point. It's a common difficulty for private investors (and some institutions too, perhaps!), who end up buying banks or other financials because of their "feel" for how the company is doing, rather than because the numbers add up.

Of course, it doesn't help that even the people who work in banks, in divisions such as risk, are sometimes similarly unable to tell whether the numbers add up and what is really "under the hood"!


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grb 11th Jan 18 of 29

I'd love to see someone with good knowledge of the sector covering resource small-caps in this format / style. It seems like that's a big segment of the market with little meaningful discussion coverage on this site.

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ds1980 11th Jan 19 of 29

Whilst we are making suggestions ;-) is it possible to have one report with individual's bits added? You only get one email regarding the reports and I will sometimes miss the other if not looking on Twitter for example. It saves all your preamble pointers also and keeps discussions in 1 place also. Just a thought. Ta

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JDW72 11th Jan 20 of 29

In reply to Trident, post #9

Two friends of mine have had the same experience with Foxtons when selling their flats (750 - 900k flats) in the last 18 months. They got three separate agent valuations including Foxtons and in both cases the Foxtons valuation was at least 15% higher than the other two.

So they both decided to give the "inflated" Foxtons price a go and gave them 8 weeks to market and get an exchange and in both cases Foxtons comfortably managed it at the asking price within a few hundred quid. So, in my sample of two, they did rather well.

I have no position, no relationship and no insight into the underlying business model or investment case. Just thought I'd chuck in that information.


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Trident 11th Jan 21 of 29

Fair enough JDW72. Obviously they are a successful organisation with a strong sales approach. I avoided them when looking in the market for their 'overvaluation' tendencies.

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danielbird193 11th Jan 22 of 29

In reply to JDW72, post #20

I have heard the same sort of stories anecdotally. Amazing that some people are blinded to this extent by their investment in fancy coffee machines for their offices and nice cars for their salespeople!

It's a decent business model when prices are rising fast, and people can "afford" to overpay slightly in the knowledge that the fair value of their flat will catch up in only a few months. I think the real question is how well this sort of business model holds up when prices stagnate (as they already are in super-prime central London) or, heaven forbid, start to decline slightly. It seems a risky end of the market to be in if the property market takes a turn for the worse.

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jonesj 11th Jan 23 of 29

Hello Graham,

Thanks for the article. 

I don't think you need a formal division of responsibility by sector.

The SCVR has worked well on the basis that Paul wrote a lot when he had a lot to say, wrote little when he had little to say & ignored the companies he was not interested in.
Generally, if there is more freedom to comment when you both have something to say, it will be more interesting for us & we will continue to see high quality analysis from both of you, as we do currently.

I would even be happy to read 2 separate commentaries on the same company.


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zag164 12th Jan 24 of 29

Hello Graham,

Thanks for the analysis.

I'm new here but I noticed one small thing that would be useful is if you and Paul could set the analysis hyperlinks to open in a new browser tab by default. Would make it easier to flick back and forth between the stockopedia analysis and your blogs.


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Graham N 12th Jan 25 of 29

Thanks very much for the suggestions, all have been read and I will pass them on to Paul.

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underscored 12th Jan 26 of 29

In reply to tabhair, post #7

Letting fees are being banned

Foxtons ought to pray for an affordable housing market, as there is no way it is going to survive at its' current size without a big increase in sales volumes.

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tombuz 12th Jan 27 of 29

In reply to jonesjeff, post #23

Hello Graham,
I agree with Jeff. There is no need for responsibility by sector. The analysis is working very well at the moment with Paul and Graham guided by their own knowledge and enthusiasm. Of course if in future more commentators come on board coverage can be extended to financial and resource stocks if the demand is there. One of the pleasures of this site is its high quality and the freedom of the commentators to roam a bit without making any claims to be comprehensive.

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xcity 12th Jan 28 of 29

I've noticed that reports now seem to be formatted Date - Part I or II.
I'd find it simpler if it were Date - Paul or Date - Graham.

I don't mind what is included in them, or if you both write about the same company.
My main issue is that you would both write about what interests you.
Completeness is good, but not at the expense of obscuring the difference between writing what you are thinking from the thoughts that come to you when you force yourself to think about something that doesn't seem very interesting to you. Writing about what is interesting him has been one of the great strengths of Paul's column in the past. You don't want to get like an Investors Chronicle for small companies.

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Bushranger 14th Jan 29 of 29

In reply to grb, post #18

Malcolm Graham Wood used to be a Stockopedia Author and post on the oil sector. He now has his own blog.

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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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