Small Cap Value Report (12 Dec) - MOSB, ZYT, CMX, RGS

Thursday, Dec 12 2013 by

Good morning! Ed held another Webinar on Stockopedia yesterday, and it was I think the busiest yet, with about 250 people registering. I listened in, and as usual it was chock full of useful information - and for those who missed it, the video of the webinar is now live. Well worth a listen - e.g. it flagged up a useful feature on Stockopedia that I hadn't even noticed was there - "run a checklist", which I shall experiment with later.

The US market had a noticeable pullback last night, for the first time in a while. This is what we need - a bit of fear coming back into the market, and taking the top off the most frothy valuations, which are in abundance. That is the way a healthy market should work, otherwise bull markets just soar out of control, and we end up with a market crash.

So we are forecast to open down about 30 points here in the UK, with the FTSE 100 Future indicating 6,486 at the moment. Why do I mention that? Just because it sets the background for what we can expect at the open.





It's fairly quiet for news today. Moss Bros (LON:MOSB) has issued an IMS covering the period 28 Jul to 7 Dec 2013, so that's the bulk of its H2, as the year-end date is on or around 26 Jan 2014. They have been trading surprisingly well for a while now, at least in terms of sales performance anyway. That trend continues, with an impressive H2 performance so far, with the key LFL ("like-for-like", i.e. eliminating the impact of new stores & closed stores) sales being up 5.3% against last year - that really is impressive, in an economy that's growing at nothing like that rate.

LFL sales for the 45 weeks of the year to date are up 2.2%, so this points towards an improving sales trend in H2 so far. Gross margin is 70 basis points down on the equivalent period in H2 last year, which will negate just under a quarter of the sales gain, in profit terms, by my rough calculations:


 H2 performance to date Last Year This Year  
Turnover 100.0 105.3 +5.3%

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Moss Bros Group PLC is engaged in retailing and hiring formal wear for men. The Company operates through Moss Bros branded mainstream stores. The Company's segments include Retail and Hire. The Company offers various types of suits, skirts, jackets, trousers, coats, casualwear, ties, shoes and accessories. The Company offers clothing and accessories for various occasions, including weddings, prom, race day suit, tuxedo and black tie, interview attire and graduation. The Company also trades through Savoy Taylors Guild fascia. It has approximately 100 Moss Bros and Savoy Taylors Guild branded stores and over 20 Moss Bros outlet stores, which trade Moss Bros own brands and selected third-party brands, including Hugo Boss, Canali, Ted Baker, DKNY and French Connection. The Company has approximately 120 Moss Bros Hire outlets, which are contained within Moss Bros Retail and Savoy Taylors Guild Stores. The Company's sub brands consist of Moss London, Moss 1851 and Moss Esq. more »

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Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

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Catalyst Media Group Plc, through its interest in Satellite Information Services (Holdings) Ltd (SIS), is engaged in supplying data, pictures and pricing across a range of sports. SIS provides broadcast solutions 4K resolution (4K), high definition (HD), satellite uplinks, streaming, satellite Internet, and teleport and fiber services through its SIS LIVE division. SIS also provides the live racing coverage, including video, audio commentary, betting information and all the bookmakers' data streams. SIS provides these services to the United Kingdom and international horseracing, greyhound racing and virtual content. SIS also provides these games directly to gaming providers, such as betting companies. SIS LIVE's satellite portfolio includes Satellite Internet services. SIS LIVE also offers a range of connectivity services, including terrestrial fiber circuits, teleport and master control room (MCR) facilities. more »

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

18 Comments on this Article show/hide all

WatsonNimrod 12th Dec '13 1 of 18

Hi Paul, Many thanks for the heads up on the webinar yesterday, I found it very helpful.

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bsharman 12th Dec '13 2 of 18

Hi Paul,
Creston seem to be getting cheaper by the day and are now trading at c80p down from their trading range of 100-110p. As you mentioned yesterday they do seem to be good value on a PER and they do have lots of cash. It seems that some institutional shareholders have been selling however. I'm still holding off buying as it may have further to fall. It's very difficult to know what to do but the value investor in me is saying BUY!

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JakNife 12th Dec '13 3 of 18

Any views on Titon Holdings' (TON) results? Look value-ish to me.

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kenobi 12th Dec '13 4 of 18

It's not one I would be interested in, but aren't you being harsh on Moss bross not stripping out the cash before calculating a pe ? if you take the 26M off the 69M valuation thats more than a third, which in rough terms would suggest a pe of 20 rather than 30, falling to maybe 14 next year ? no bargain, but not terrible if you believe the online will grow and that the potential over the next few years as the economy recovers is good. BTW on the stockopedia data it's showing a pe of 23.9, is this because it's stripping out the cash ?

cheers K

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Paul Scott 12th Dec '13 5 of 18

In reply to post #79873

Hi Kenobi,

Fair point about the cash at Moss Bros (LON:MOSB) (although I did mention that in the report). However, if a company is just sitting on a pile of cash, and never does anything with it, then I would not value it at par. I would apply a discount, to reflect the reality that the cash provides little more than a comfort blanket for management, and also that they've probably timed the year-end so that on that date the Balance Sheet shows a spike in cash, rather than being typical.

There is a strong argument for requiring companies to disclose the average daily net cash/(net debt) position in their Annual Report, and maybe a chart showing that on a daily basis throughout the year. Otherwise there is a tendency for investors to over-value companies by assuming wrongly that the year-end cash balance is typical throughout the year.

The Stockopedia forward PER is a blended calculation of this year's forecasts (for however many months are left), and next year's forecasts. By doing it that way, all companies become comparable at this point in time, regardless of their year-end dates.

Regards, Paul.

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carla77 12th Dec '13 6 of 18

In reply to post #79870


I have been following Creston all year, I do find media companies impossible to value as they usually pile in loads of goodwill which makes the P/Bk val look good, however, the P/Tang book value brings a touch of reality. Their projected earnings don't look that great going forward so like you l will hold off for a while.


Peter Barrett

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AlanJenkins2 12th Dec '13 7 of 18

Hi,Paul.Regarding Catalyst,it looks as if the high yield is compensation for the risk.Perhaps some of the shares are held by high-yield funds.

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bsharman 12th Dec '13 8 of 18

Thanks Peter,

I agree that Creston is difficult to accurately value. I haven't done the research yet but I wonder how the value of intangible assets and goodwill compares to similar businesses. I see that the forecasts for 2014 have been reduced and it seems that there is an issue with director remuneration (there are lots of unhappy shareholders on other BBs). I am therefore a bit wary - it could be a value trap.... I will hold off for now. If it gets down to 60-70p I might become more interested!

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kenobi 12th Dec '13 9 of 18

yes perfectly reasonable Paul, I appreciate that cash on the balance sheet doesn't really help much so it could perhaps be discounted, however, this of course is only true until something unexpected happens or some opportunity comes up. Personally I'm very much in your camp, that companies with large debts are to be avoided, because if anything goes wrong they're at the mercy of the banks, well, having a good chunk of cash on the balance sheet is just extra protection, plus, it can be bought into use if a good opportunity comes up, for example to take out a competitor who hits on hard times, without the need to issue paper, at perhaps a bad time.

So while I agree, and in this case the amount of cash is a very high percentage of market cap, I do like to see cash on the balance sheet. I also take on board your comments re average bank position, because as you've mentioned before a lot of balance sheet massaging goes on at year end,

Cheers K

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emmo1210 12th Dec '13 10 of 18

Hi Bsharman,

I recently looked at Creston and would suggest that it is a value trap. Yes - on a PE and especially on a free cash flow basis the company appears very cheap, but it has a solid record of poorly executed acquisitions, destroying any apparent value. You may also want to look close at executive remuneration and options when deciding. Just my take.

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iwright7 12th Dec '13 11 of 18


Would be interested in comments on THG results?



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Paul Scott 12th Dec '13 12 of 18

In reply to post #79888

Hi emmo,

I've looked through the Creston (LON:CRE) Annual Report, and in my opinion concerns over Executive remuneration are exaggerated. Yes a £400k basic salary for the CEO is quite high, but it's not outrageously high - perhaps 20-30% lower would be more appropriate. That sort of extent of overpayment would not be a deal-breaker for me.

As regards the Share Options, it's just very confusing. There seem to be 2.8m share options under an LTIP, but this replaced 2 other schemes I think, but they are still disclosed. The price of the awards is not clear either. Is that the share price at the time the LTIPs were issued, or is it a strike price?

Given that there are 60.5m shares in issue, I don't see anything really horrendous going on here, although I don't fully understand the disclosures on share option schemes. A rule of thumb is that dilution should never get to 10% of the total equity in issue, and this seems well within that, so I'm not sure why the advfn commentators are getting so worked up over this, unless I've misunderstood the position.

If I get time, I'll ring the company to clarify, but it's time for my afternoon nap now!

Cheers, Paul.

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bsharman 12th Dec '13 13 of 18

good work Paul - enjoy your siesta!

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Paul Scott 12th Dec '13 14 of 18

In reply to post #79893

Hi Ian,

I generally don't cover property companies, unless it's something very specific that I've researched in detail. So Terrace Hill (LON:THG) is not one I cover. Overall, I cover about 500 companies, but that's pretty much the limit of what I can manage!!! One day when I've got a team of researchers working for me, then we'll cover everything :-)

Cheers, Paul.

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emmo1210 12th Dec '13 15 of 18

Hi Paul,

The salaries in themselves are not the crux of the issue for me, it is the salaries combined with the lacklustre performance, trundling from year to year . This sort of over payment definitely would be a deal breaker for me. Why should we give management further opportunity when they have demonstrated poor levels of ability and decision making in the last 15 odd years. I think the market has this one right and see know evidence to believe that things are going to get materially better.


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shipoffrogs 12th Dec '13 16 of 18

In reply to post #79875

"There is a strong argument for requiring companies to disclose the average daily net cash/(net debt) position in their Annual Report, and maybe a chart showing that on a daily basis throughout the year."

Alternatively, a rough and ready approach is to look at the interest receivable/payable note, - it should give a good indication of the average cash balance through the year.

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Paul Scott 12th Dec '13 17 of 18

In reply to post #79909

Hi shipoffrogs,

Absolutely, that's a point I frequently make in my reports - i.e. reasonableness checking the interest charge on the P&L to make sure that it is consistent with the year-end net debt figure.

However, given that interest rates on cash balances are effectively almost zero at the moment, it doesn't help when estimating net cash, so only works for the debt side of things at the moment.

Hence why I would like more disclosure in Annual Reports to specifically explain the annual net cash/debt cycle, and therefore enable investors to work out a more accurate Enterprise Value using the average cash/debt balance throughout the year, rather than base it on a year-end spike (most companies window-dress the year end Bal Sheet in my experience).

Cheers, Paul.

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SingSing 13th Dec '13 18 of 18

In reply to post #79895

very good objective summary and written in a dispassionate manner.
That's why I read these daily reports.

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

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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