Small Cap Value Report (12 Jan 2017 - Part 1) - AO., JD., MOSB, MTC, RBN

Thursday, Jan 12 2017 by

Good morning!

Graham is also writing today, his report is gradually taking shape here

I'm aiming to report today on;

  • AO World - only modest growth, and cautious outlook. Not good enough, I'm bearish.
  • JD Sports - a barn-storming trading update!
  • Debenhams - perhaps better than expected Xmas performance? (sorry, I ran out of time, so didn't cover this one in the end)
  • Moss Bros - in line trading update. Looks pricey to me.
  • Mothercare - in line trading update. Potential turnaround?
  • Robinson - mild profit warning, but upbeat outlook. Property angle too.

You might have noticed that I've strayed into several mid & large cap stocks in the list above. I always agonise over what to report on at this time of year. The retail sector is my sector specialism, due to having been an FD for 8 years for a ladieswear chain. So naturally I'm drawn to RNSs from retailers.

However, you can get reporting & analysis on larger caps from numerous other sources. So there's little value added from me just replicating here what others report on. Hence I'll just cover retailers which particularly interest me, for whatever reason.

Other retailers which also reported today, include: Tesco, Marks & Spencer, Asos (excellent international growth), ABF (Primark), and Dunelm. I'm not going to report on them here.

Graham intends reporting today on;

  • STM - in line update, and optimistic outlook.
  • Stadium - broadly in line.
  • Gym Group - self-funding roll-out of low cost gyms.
  • Premier Oil - trading update. Oil? Oil!! {{shudders}}
  • SuperGroup - interim results.

So let's hope we can successfully get through all of that lot.

IG small caps wrap

I have a quarterly chat on video with Jeremy Naylor at IG, about my favourite small caps.

We recorded the latest edition yesterday afternoon, the link is here - it's about 15 minutes long.

Regulars here will recognise all the stocks as my favourites. As always, they're not buy or sell recommendations - that's for you to decide! They're just my favourite current stock ideas, some of which will work, and some won't.

Growth vs Value?

Generally, most Christmas trading updates for retailers are coming through fairly well. So it looks as if the first one to report, Next (LON:NXT) probably had more company-specific issues for its lacklustre performance. Mind you, Next's figures weren't actually that bad at all. Everyone's talking about it as if it had a disastrous Xmas, but…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

Do you like this Post?
87 thumbs up
0 thumbs down
Share this post with friends

AO World Plc is an online retailer of electrical products. The Company operates through two segments: online retailing of domestic appliances to customers in the UK, and online retailing of domestic appliances to customers in Europe (excluding the United Kingdom). The Company offers over 5,500 stock keeping units (SKUs) in the United Kingdom, approximately 2,000 in Germany and over 600 in the Netherlands. The Company offers a range of ancillary services, such as customer finance options, an unpack and recycle service, product care packs, and disposal and connection services. In the United Kingdom, the Company operates in approximately three categories: Major Domestic Appliances (MDA), Small Domestic Appliances (SDA) and Audio Visual (AV). The MDA market offers built-in appliances, such as dishwashers. The SDA market comprises small appliances, food preparation and floor care. The AV market includes television, audio, set-top boxes, digital versatile disc (DVD) and Blu-Ray players. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

JD Sports Fashion Plc is a multichannel retailer of sports fashion and outdoor brands. The Company's segments are Sports Fashion and Outdoor. The Company's sports fashion brands include JD, Size?, Chausport, Sprinter,, Kooga, Kukri Sports, Source Lab, Scotts, Tessuti, Cloggs, JD Gyms and Nicholas Deakins. Its outdoor brands include Blacks, Millets, Tiso and Ultimate Outdoors. Chausport operates throughout France retailing international footwear brands, such as Nike, adidas and Le Coq Sportif together with brands specific to the local market, such as Redskins. Sprinter is a sports retailer in Spain selling footwear, apparel, accessories and equipment for a range of sports, as well as lifestyle casual wear and childrenswear. Kooga designs and sources rugby apparel and equipment. Cloggs is an online retailer of branded footwear. Blacks is a retailer of specialist outdoor apparel, footwear and equipment. It has over 900 stores across a range of retail fascias. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

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 »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

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

57 Comments on this Article show/hide all

Trigger14 12th Jan '17 38 of 57

Similar to my fantasy portfolio here

You will see my rules have been somewhat aspirational in the past - aim of writing them down was to become more disciplined now I have a clearer hypothesis about what might work well as a strategy.

Blog: Quality Share Surfer
| Link | Share
FREng 12th Jan '17 39 of 57

In reply to post #166539

Paid warranties and other insurance are just a bet – at fixed odds which the bookie knows better than you do because they have the data.

| Link | Share | 1 reply
jonesj 12th Jan '17 40 of 57

In reply to post #166617

Paid warranties offered by the likes of Currys are the most profitable part of their business, therefore the worst value for the consumer.
On that basis, I NEVER take these warranties.

Additionally, the consumer protection laws require goods to last a reasonable length of time, so an assertive customer should be able to get products fixed by the supplier out of warranty.

Considering all that,  extended warranties sound like a good business to be in, although what are the chances of the suppliers being unfairly done for mis-selling in the future ?

| Link | Share
Beginner 12th Jan '17 41 of 57

Hi Paul
It is interesting to see what you say about the spread at Robinson (LON:RBN) . I have a small holding in Belvoir Lettings (LON:BLV) (Belvoir Lettings)  , and was thinking of selling it on today. I was offered a price of 70p. Huh, thought I, maybe it is actually worth adding instead of selling if they have dropped that much. I could buy the same quantity at 111.8! Is that a record?

(The spread at Robinson (LON:RBN) often narrows, presumably when people want rid. The same applies at Revolution Bars (LON:RBG) .)

| Link | Share
rhomboid1 12th Jan '17 42 of 57

Thx for covering Robinson (LON:RBN) , I'm ok with seeing this one out, my view is I'm getting a decent packaging business, with a mixed record, for a P/EV of c. 7, it'll also pay good( & maybe special) dividends at a generous level. At just over 1% of portfolio that's fine by me.

| Link | Share
Paul Scott 12th Jan '17 43 of 57

In reply to post #166545

Hi alpha2,

Can you clarify what you think is reasonable? I have been looking at CAKE who seem to me to meet most of the criteria but according to the Stockopedia notes on PEG, their's looks high at 1.39.

I treat retail roll-outs like CAKE slightly differently.

PEG only looks at the coming year. Whereas I look say 5-10 years forwards, and try to imagine what size the business will be then. With CAKE, I see a business that has scope to grow considerably, and could be say 3 times its current size in 5 years.

Therefore, I reckon the shares could be 3+ times the current price (which implies about £10 per share) in 5 years.

That may sound ridiculously simplistic, but it's exactly how a good retail roll out works. They just open more branches each year, and profit rises rapidly. It's the easiest type of investment to make - you just buy & hold, doing nothing.

The danger is that the format goes stale of course. I don't think that is likely to happen with CAKE, as management is so strong.

The biggest mistake is to sell too early. Luke Johnson did that with Pizza Express, losing out of massive potential upside. So he won't make the same mistake again here.

This is just a buy & forget share, in my view. (I hold)

Regards, Paul.

| Link | Share | 1 reply
Aislabie 12th Jan '17 44 of 57

I do not now have a holding in Robinson RBN but have observed it over the years and it has become a regular feature to fall back on the value of property they still have as a way to save their value. It is a company that has done some good things in its packaging business, but it is tough to hold onto margins when so much is consumer related and going through the supermarkets.
It is interesting to speculate that if they had sold the packaging business and gone into property development it is almost certain that the shareholders would have had wildly improved results.

| Link | Share
alpha2 12th Jan '17 45 of 57

Thanks Paul, nothing worse than stale CAKE!

| Link | Share
smatthews1 12th Jan '17 46 of 57

Hi Paul

Do you have any rule of thumb for operating margin? or a minimum?

I personally like to see a minimum of 10%, this can be a big ask for a growth stock, so i will occasionally bend the rules if there other advantages.

seems quite important at times like this, with currency fluctuation and rising import costs, helps them absorb any risings costs if they had to.


| Link | Share
Rob McBride 13th Jan '17 47 of 57

I'm a big fan of checklists, but I have never put together one specifically for growth stocks so this is highly useful. A couple of checks I'd add to it are:
- Liquidity of the share: a combination of the EMS (at least £3k) and spread (ideally <= 5%)
- Intangibles: a quick check to ensure bottom line isn't being boosted by some dubious capitalisation of intangibles.

| Link | Share
andrea34l 13th Jan '17 48 of 57

Does anyone have any views on DEB? Was hoping for a write up as it has previously been covered.I know it's not high growth, but they seem to be making progress, pay a good divi, and have a per of about 8

| Link | Share
TMFMayn 13th Jan '17 49 of 57

In reply to post #166650

"The biggest mistake is to sell too early. Luke Johnson did that with Pizza Express, losing out of massive potential upside. So he won't make the same mistake again here."

I followed PIZ for several years and my recollection is quite the opposite. 

I recall Mr Johnson selling his shares at £8 or so in 1997/8 when he was trumpeting  the chain's international expansion and the rating was very warm. He left PIZ in 1999 to set up Belgo, which was a bit of a disaster (as his appearance on a TV business documentary can confirm). 

By 2003/4 I think, PIZ had hit profit trouble, the international expansion had never really got going, and the shares I am sure went below £3 and the P/E down to 7. In fact, Mr Johnson even launched a (failed) bid for the chain at about that time, which eventually was sold for something like £4 a share. A buy and forget share it was not.

| Link | Share | 1 reply
Paul Scott 13th Jan '17 50 of 57

In reply to post #166741

Hi TMFMayn,

Interesting. Maybe the article I read was a sanitised version of events then!
I can't remember where I read it, but basically the article said that Luke Johnson banked a decent profit on Pizza Express, but that it subsequently changed hands privately for many multiples of what Johnson sold out for.

I think it was referring to people buying & selling the chain privately, more recently, not when it was a listed company.

Anyway, bottom line, Pizza Express started off small, and ended up huge & very valuable. That's the key point I'm making.

Regards, Paul.

| Link | Share
Damian Cannon 13th Jan '17 51 of 57

Whatever Luke Johnson did with Pizza Express he sounds like an interesting guy - I had no idea that he was involved in so many different organisations:

With him on board I'm certainly happy with the management of Patisserie Valerie.

Blog: Ambling Randomly
| Link | Share
peterthegreat 13th Jan '17 52 of 57

My impression of Luke Johnson is that he is a bold investor who is well known for his spectacular successes which have made him rich. However, he has also had some disastrous investments so it's always worthwhile doing as much due diligence as possible yourself. I guess he is a bit like a personal venture capitalist, with the huge successes more than making up for the failures. I must admit, some of his investments are a bit too speculative for my liking, but if I had access to his due diligence and contacts, I admit I might not regard them as so speculative!

| Link | Share | 1 reply
johnrosier 13th Jan '17 53 of 57

In reply to post #166783

Luke Johnson:
I have just bought a position in Elegant Hotels (LON:EHG). Not because Luke Johnson bought a 12% stake in the last couple of months but because I think I understand why he did.
Share price 80p; book value somewhere north of 160p, growth opportunities, decent balance sheet, good cash flow and an 8.7% prospective dividend yield, which I believe is safe due to cash flow and balance sheet. Results coming soon.
I also hold Patisserie Holdings (LON:CAKE), bought in July at 286p and Revolution Bars (LON:RBG) (in which he is not involved) bought in October at 160p.

Website: JohnsInvestmentChronicle
| Link | Share | 1 reply
Velo 14th Jan '17 54 of 57

I'm fortunate to be one of those making a pretty penny with my holding in JD Sports Fashion (LON:JD.) at the mo'.

I'm somewhat bemused to be doing so well with it as I'm primarily a divi man - but it's in my riskier ISA which panders to my dark side, whereas the high yielding divi's are all in my 'safe' SIPP acc.

Was thinking of cashing it in, so comforted by Paul's opinion of there being a case for buying at this level. Might split the difference and top slice - half maybe?

| Link | Share
Paul Scott 14th Jan '17 55 of 57

In reply to post #166789

Hi John,

Re Elegant Hotels (LON:EHG) - I reviewed it here in Oct 2016, and quite liked it. Although there are some significant negatives with this share;

  • 70% of its revenues come from UK tourists, which means business is likely to decline, due to sterling weakness vs dollar
  • Zika virus is an issue
  • Cautious 2017 outlook statement in Oct 2016

The other issue is that it seems to me their properties look under-invested (i.e. inadequate capex & maintenance). I got that impression from trawling through the TripAdvisor comments on all their properties. If you do that, it soon becomes apparent that there's a recurring theme - tired decor & furnishings, slightly dated, niggly maintenance issues, etc. Given that these are mostly very expensive places to stay, that's just not good enough.

Scrimping on maintenance capex today is lost sales tomorrow. Hotels can quickly go downhill, and get a bad reputation if that situation is allowed to persist.

For this reason, I don't think the big dividend yield is a good thing at all. I would find this stock much more attractive if the divis were curtailed, or pulled altogether, in favour of focusing cashflow on upgrading the facilities & modernising the hotels.

It's certainly an interesting company though, and remains on my watch list. Luke Johnson's involvement is certainly a positive too. I'm holding back on buying until it becomes clearer how trading is going in 2017. If British tourists stay away, then the operationally geared impact could be shocking.

Regards, Paul.

| Link | Share
Richard Goodwin 14th Jan '17 56 of 57

In reply to post #166563

I suspect another relevant question would be "is the market big enough for two aggressive competitors?" Ie the US burger market proved big enough for McDonald's, Burger King, Wendy's etc which were all roll outs in their day.
The problem is that as a layman it is v hard to measure (quantify) competitive advantage. Also it is often behind the scenes such as having better trained staff or better organised cake manufacturing and higher product availability.

| Link | Share
Paul Scott 14th Jan '17 57 of 57

In reply to post #166458

Hi Coracleman,

I very much like your idea of a set of criteria for growth stocks. A list of stocks fulfilling those criteria would be most welcome. Thanks.

I'm sure it would lol! But I'm not going to do all the work for you! If you like the approach, how about you come up with some stock ideas that fit the criteria, and let us know?! ;-)

Regards, Paul. (only meant light-heartedly, please don't take offence)

| Link | Share

Please subscribe to submit a comment

 Are LON:AO.'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 »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis