Good morning!

Now that all the excitement of the Election is out of the way, the stock market has breathed a sigh of relief, and rallied a bit. Although history suggests that the Tories will find it very difficult to manage with a wafer thin majority, and possibly no majority at all after a few by-elections.

Although we've certainly avoided a variety of scenarios which could have badly unsettled the markets, which is reassuring.


Conviviality Retail (LON:CVR)

Share price: 145p
No. shares: 66.9m
Market Cap: £97.0m

Trading update - I like the sub-heading (copied below), which makes it crystal clear what the key message is, and would like all companies to do this, to make it easier for us to quickly assimilate the core message of trading updates, without having to ponder & interpret lots of text;

555062aaa5d0eCVR_tu.PNG

More detail is given;

55506356ddc73CVR_more_detail.PNG

That all sounds fairly encouraging.

Valuation - the usual Stockopedia graphics look reasonably positive here, especially the generous dividend yield;

555063d374ee3CVR_valn.PNG

My opinion - I'm generally positive on this share - it ticks some value investing boxes - a reasonable PER, and good dividend yield, although the balance sheet is not particularly strong (but not a particular concern either).

I like the franchised business model - so franchisees bear the inventory risk (of theft by staff & customers), and it therefore requires little capex. Therefore the ROE and ROCE scores in the quality section shown above are quite high. Although the operating margin is tiny, at 2.5%, which puts me off.

Competition from the supermarkets is obviously intense, and likely to become even more so. Although the Bargain Booze and Wine Rack fascias run by this company are probably more used for impulse purchases by locals, I imagine.

Growth of about 12% in turnover & profit are forecast this year, due to additional stores acquired recently. Although note that there is no organic growth, with LFL sales down 1.7% for the main Bargain Booze stores. Lack of organic growth is a concern, and suggests they are only just holding their own against stiff competition.

Overall I think it's probably safest for me to avoid these shares, although the divis are appealing. There is also the worry of potential bad debt risk, if a major franchisee were to go bust at some point. Therefore on balance I think it's probably priced…

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